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Federal student loan interest has started accruing again. Here’s what you need to know

by Ryan Lee
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student loan repayment

The resumption of accruing interest on federal student loans has come into effect after a three-year hiatus prompted by the COVID-19 pandemic. It is crucial to note that the obligation to commence loan repayments is still a month away, and therefore, an immediate sense of concern is unnecessary. For those seeking clarity regarding their student loans, the subsequent details offer comprehensive insights:

INITIAL STEPS:
To initiate the process, it is imperative to access your StudentAid.gov account and ascertain your designated loan servicer. It is important to acknowledge that the pandemic has prompted alterations in several loan servicers, potentially leading to a disparity from your March 2020 status.

Once you have identified your loan servicer, accessing your account is essential to retrieve crucial information such as the student loan balance, monthly repayment amount, and interest rate. Betsy Mayotte, the President of The Institute of Student Loan Advisors, strongly recommends updating personal information on your account to ensure the reception of vital communications.

DETERMINING INTEREST RATE:
While the post-pandemic landscape has seen a notable increase in interest rates, most recipients of federal student loans will maintain their pre-pause interest rates. However, if actions such as loan consolidation transpired during the pandemic, the interest rate may have undergone modifications. In instances of uncertainty regarding an altered interest rate, online account verification is recommended.

ASCERTAINING PAYMENT AMOUNTS:
To gauge your monthly student loan repayment, consulting your loan servicer’s account is the pivotal step. If uncertainty persists regarding your servicer, your studentaid.gov account can aid in uncovering this essential detail.

ADDRESSING EXCESSIVE PAYMENTS:
For individuals apprehensive about their capacity to meet renewed repayment obligations, multiple avenues are available for consideration. President Joe Biden’s announcement of a 12-month grace period serves as a buffer for borrowers encountering challenges post-resumption of payments. Although making payments during this period is recommended, non-payment does not expose borrowers to the risk of default, nor does it adversely affect credit scores. It is noteworthy that interest will accumulate regardless of payment status.

Further exploration into eligibility for an income-driven repayment plan is recommended by Mayotte. A loan-simulator tool, available on StudentAid.gov or TISLA’s website, aids borrowers in identifying the most suitable payment plan. These calculators provide insights into monthly payments under various plans and long-term costs.

In the preceding year, the Biden administration introduced the SAVE plan, characterized by lenient terms. On this plan, interest accrual is contingent on consistent payments by borrowers. However, it is plausible that legal challenges akin to those faced by previous plans could arise.

MITIGATING REPAYMENT COSTS:
Several strategies exist to mitigate the financial impact of student loan repayments:

  • Automatic Payments: Enrolling in automatic payments leads to a reduction of a quarter of a percent in your interest rate.

  • Income-Driven Plans: While not universally suitable, opting for these plans can be prudent, especially if eligibility for forgiveness under the Public Service Loan Forgiveness program is anticipated. In such cases, minimal monthly payments are advisable as the outstanding debt is expunged after a decade of payments.

  • Financial Reevaluation: During tax season, a meticulous review of your monthly student loan repayment is recommended. This is a conducive period to ascertain whether adjustments to the repayment amount are viable.

  • Payment Frequency: Adapting payment frequencies to personal preferences can be beneficial. The option of two installments per month may be preferable to a single, larger monthly payment.

ADDITIONAL CONSIDERATIONS:
Mayotte emphasizes the importance of vigilance against scams. Any entity requesting payment for assistance or application to programs such as income-driven repayment plans or the Public Service Loan Forgiveness (PSLF) is a red flag. Heightened caution is essential in these exceptional times, as scammers leverage the prevailing circumstances to propagate seemingly plausible narratives. To safeguard against such threats, the Department of Education advocates familiarity with official email addresses, vigilance against typographical errors in advertisements, and abstaining from divulging login credentials.

Notably, The Big Big News extends its gratitude to the Charles Schwab Foundation for its support in fostering educational and elucidative journalism aimed at enhancing financial literacy. It is essential to clarify that the independent foundation remains distinct from Charles Schwab and Co. Inc., and the responsibility for the journalism’s accuracy solely rests with The AP.

Frequently Asked Questions (FAQs) about student loan repayment

When did the accrual of interest on federal student loans resume?

The accrual of interest on federal student loans resumed after a three-year pause due to the COVID-19 pandemic.

How long do I have before I need to start repaying my student loans?

You still have at least another month before you need to start repaying your student loans.

How do I find out who my loan servicer is?

The first step is to log in to your StudentAid.gov account and check who your loan servicer is. Due to changes during the pandemic, your loan servicer might be different from what it was in March 2020.

How can I access information about my student loan balance and monthly payment?

Once you know your loan servicer, log into your account with them to access details such as your student loan balance, monthly payment amount, and interest rate.

Has the interest rate on federal student loans changed?

Interest rates have increased since the pandemic, but most borrowers with federal student loans will still have the same interest rate as before the payment pause. If you’re uncertain about your interest rate, you can check your account online.

How can I find out my monthly student loan payment?

Borrowers can find out their monthly student loan payment by logging into their account with their loan servicer. If you’re unsure about your servicer, you can find it by logging into your studentaid.gov account.

What should I do if my payments become unaffordable?

President Joe Biden announced a 12-month grace period to assist borrowers struggling with payments after they restart. While it’s advisable to make payments during this period, not doing so won’t lead to default or credit score impact. Interest will accumulate regardless of payment status.

Are there income-driven repayment plans available?

Yes, borrowers can explore income-driven repayment plans to manage their loan payments. The loan-simulator tool on StudentAid.gov or TISLA’s website can help identify a suitable plan.

What is the SAVE plan introduced by the Biden administration?

The SAVE plan is a new income-driven repayment plan with lenient terms. Under this plan, interest won’t accumulate as long as borrowers make regular payments.

How can I reduce costs while repaying my student loans?

Enrolling in automatic payments reduces your interest rate. Income-driven repayment plans might be suitable for forgiveness under specific circumstances. Reevaluate your repayment during tax season and consider dividing payments into multiple installments.

What precautions should I take against scams?

Stay vigilant against scams that ask for payment for loan assistance or program applications. Be cautious of official email addresses, typographical errors in advertisements, and never share your login information.

Who supports The Big Big News and its financial literacy efforts?

The Charles Schwab Foundation supports The Big Big News for educational and explanatory reporting to enhance financial literacy. This foundation is separate from Charles Schwab and Co. Inc., and the AP is solely responsible for its journalism.

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