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How to Prepare for Resuming Student Loan Payments After the Pandemic Payment Freeze

by Andrew Wright
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student loan payments

After the Supreme Court’s decision to strike down the Biden administration’s debt forgiveness plan, an estimated 43 million borrowers will need to resume their original student loan payments in the fall. The pandemic pause on federal student loan payments will end, and interest will start accruing on September 1, with payments restarting in October.

The Supreme Court ruled that the Biden administration had exceeded its authority in attempting to cancel or reduce student loan debt. The proposed plan aimed to forgive $10,000 in federal student loan debt for individuals with incomes below $125,000 per year or households earning less than $250,000. It would have additionally erased $10,000 for those who received federal Pell Grants for college.

To prepare for the resumption of payments, here are some important considerations:

  1. Delay Payments: Betsy Mayotte, President of the Institute of Student Loan Advisors, suggests holding off on making payments until the payment pause officially ends. Instead, set aside the money you would have paid into a savings account. This way, you maintain the habit of making payments while earning some interest.

  2. Explore Payment Plans: Use tools like the loan simulator on StudentAid.gov or the one on TISLA’s website to find a payment plan that suits your needs. These calculators provide information on monthly payments and long-term costs, helping you make an informed decision.

  3. Consider Long-Term Implications: Don’t focus solely on the lowest monthly payment option. Sometimes, selecting the option with the lowest monthly payment can result in higher overall costs over the loan’s lifespan. It’s essential to reevaluate your financial situation regularly and adjust your payment plan accordingly.

  4. Understand Income-Driven Repayment Plans: An income-driven repayment plan sets your monthly payment based on your income and family size, aiming to make it affordable. It considers various budgetary expenses, and most federal student loans qualify for at least one of these plans. To enroll in an income-driven plan, fill out an application through the Federal Student Aid website.

  5. Seek Guidance: Consult a mentor, financial advisor, or counselor to better understand your options and ensure you’re on the right track. The Federal Student Aid website can provide information on available counselors and organizations like the Student Borrower Protection Center and the Institute of Student Loan Advisors.

  6. Payment Plans: While payment plans are always available, it’s advisable to wait until the pause on payments and interest accrual is over. Nonpayment during this period does not result in any financial penalties.

  7. Financial Difficulties: If you’re unable to resume payments due to budget constraints, deferment or forbearance may be options to consider. Contact your loan servicer to determine your eligibility. Keep in mind that interest continues to accrue during deferment or forbearance, and they may affect potential loan forgiveness options.

  8. Reducing Costs: Explore strategies to reduce costs when paying off your student loans, such as signing up for automatic payments to receive a slight reduction in interest rates. For those eligible for Public Service Loan Forgiveness, it may be beneficial to make the lowest monthly payments possible, as the remaining debt will be canceled after a decade of payments. Reevaluating your monthly repayment during tax season and finding a payment schedule that works best for you are also helpful.

  9. Loan Forgiveness: The Public Service Loan Forgiveness program offers loan cancellation after ten years of regular payments for those working for government agencies or nonprofits. Certain income-driven repayment plans may also cancel the remaining debt after 20 to 25 years. Ensure you’re enrolled in the most suitable income-driven repayment plan to qualify for these programs. Additionally, borrowers defrauded by for-profit colleges may apply for borrower defense to receive relief, and these programs remain unaffected by the Supreme Court ruling.

Remember, it’s essential to stay informed about your student loans and make informed decisions regarding payment plans and financial strategies. Seek guidance when needed to better navigate this aspect of your financial journey.

Frequently Asked Questions (FAQs) about student loan payments

Q: How should I prepare for the resumption of student loan payments after the pandemic payment freeze?

A: To prepare, it is recommended to hold off on making payments until the pause officially ends and instead save the money in a separate account. Explore payment plans using online tools and consider the long-term costs. Utilize income-driven repayment plans and seek guidance from mentors or financial advisors.

Q: What are income-driven repayment plans?

A: Income-driven repayment plans set monthly student loan payments based on income and family size, aiming to make them affordable. These plans take into account various budgetary expenses, and most federal student loans are eligible for at least one of these plans. To enroll, fill out an application on the Federal Student Aid website.

Q: What should I do if I can’t afford to resume loan payments?

A: If you’re unable to resume payments, options like deferment or forbearance may be available. Contact your loan servicer to determine eligibility. Keep in mind that interest continues to accrue during these periods, and they may affect potential loan forgiveness options. Seek guidance from your loan servicer or financial advisor.

Q: How can I reduce costs when paying off my student loans?

A: Some strategies to reduce costs include signing up for automatic payments, which may result in a slight interest rate reduction. For those eligible for Public Service Loan Forgiveness, making the lowest monthly payments possible is advisable, as the remaining debt will be canceled after a decade of payments. Reevaluating your repayment during tax season and finding a payment schedule that suits you can also be helpful.

Q: Are student loans forgiven after a certain period of time?

A: Depending on the circumstances, student loans may be forgiven after a specific period. The Public Service Loan Forgiveness program offers cancellation after ten years of regular payments for those working for government agencies or nonprofits. Certain income-driven repayment plans may also cancel the remaining debt after 20 to 25 years. Ensure you’re enrolled in the appropriate repayment plan to qualify for these programs. Additionally, borrowers defrauded by for-profit colleges may apply for borrower defense to receive relief.

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