Federal Student Loan Pause is Ending: 5 Tips for Your Loan Payments
September is here and with it comes the return of interest accruing on federal student loans. Debt is stressful AF on its own, but knowing the little bit of extra wiggle room is about to come to an end, it feels even worse.
If you’re one of the 45 million Americans with student loans and are panicking about what the return of interest and payments means for your financial situation, take a deep breath and relax. Today, I’ve got 5 tips for restarting your student loan payments.
**Spoiler alert: Changing your name, dying your hair, and skipping town won’t help (unfortunately).**
What to Know About the End of the Student Loan Payment Pause
The federal government initially enacted a pause on federal student loan payments including interest and payments in response to economic challenges posed by the COVID-19 pandemic in early 2020. Since then the pause has been extended multiple times in an effort to provide temporary relief to borrowers during the pandemic.
The Department of Education’s temporary forbearance program is ending with payments set to resume October 1, 2023 and interest resuming September 1, 2023.
5 Tips for Restarting Your Student Loan Payments
I know it may not feel like it now, but you can pay off your student debt once and for all. I still remember the day I made my last payment; it felt fantastic — though I did feel like confetti should have shot out of my computer. It does not. BUT, it still felt great and this totally can be you. All you need is to make a plan and stick to it.
Here are 5 tips for restarting your student loan payments:
1) Verify Your Student Loan Servicer and Login to Your Account
You know that game where an object is hidden under a coconut shell and that shell gets spun around with two others and the goal is to keep your eye on the one containing the object?
Well, that’s essentially what’s happened to a lot of student loans. 🙄
During the pause there was a great reshuffling of loan servicers, and yours may have changed (and for added fun, some folks now have multiple servicers). Double check that your loans have been assigned to the same servicer you were using before by logging into the Federal Student Aid website.
Once you’ve verified your loan servicer(s), login to your accounts and verify all of your information is up to date including your name, address, phone number, and income information if applicable.
2) Know Your Student Loan Monthly Payment and Due Date
Your due date should be the same from before the payment pause, but ya know, it’s been a minute (like three years), so double check with your loan servicer so you know exactly when your payments will be due.
Remember, if you need a different due date, you can request that through your loan servicer! If your current due date isn’t in alignment with your cash flow, change it!
There’s a good chance your monthly payment has changed, especially if your repayment plan has changed. Verify how much you owe monthly to avoid any surprises and so you can budget accordingly.
3) Choose a Student Loan Repayment Plan That Works for You
Chances are your situation has changed since the pandemic and that's okay! Now is a great time to think about whether you’re on the best repayment plan for you.
The U.S. Department of Education offers a variety of repayment plans like:
Graduated Repayment Plan
Repay federal student loans by starting with a lower amount and increasing every 2 years.
Pros: Good for people in their lower earning years and expect income to increase.
Cons: More interest accrues.
Extended Repayment Plan
Extend the time you have to pay back your student loan from 10 years up to 25 years.
Pros: Lowers your monthly payment if you're stretched thin.
Cons: Can increase total loan amount significantly due to interest.
Revised Pay As You Earn Repayment Plan (REPAYE)
Repayment plan with monthly payments equal to 10% of your discretionary income, divided by 12.
Pros: Shorter max repayment period (20 vs 25 yrs) & lower cap on payment.
Cons: No cap on the monthly payment equal to the payment on a standard repayment plan; it will always be 10% of your disposable income. So if your income rises to the point where you can pay more than that amount, you will be required to do so. Also - spouse's income is included even if you file separately.
Pay As You Earn Repayment Plan (PAYE)
Same dealio as REPAYE except must have a financial hardship + spouse's income isn't included.
- Income-Based Repayment Plan (IBR): Monthly payments that are generally equal to 15% (10% if you are a new borrower on or after July 1, 2014) of your discretionary income, divided by 12.
Pros: Lower monthly payments can be easier on the budget.
Cons: More interest since you'll be paying on them longer - in fact your payments may be lower than the interest you're even paying which can really be not great.
Income-Contingent Repayment Plan (ICR)
Repayment plan that caps federal student loan payments at the lesser of 20% of the discretionary income you have available to you or the amount you’d pay on a repayment plan if payments were fixed over 12 years and adjusted to your income.
Pros: The only income-repayment plan for Parent Plus Loans + less interest over time since you're making higher payments.
Cons: Higher monthly payments than some of the other options.
Income-Sensitive Repayment Plan
This is only for low-income borrowers who have Federal Family Education Loan (FFEL) Program loans. The payments under this plan increase or decrease based on your annual income.
Pros: Caps your monthly loan payments at 4% and 25% of your gross monthly income, depending on your lender’s unique formula.
Cons: Must reapply every year and can only be done for a maximum of 5 years.
Saving on a Valuable Education Plan (SAVE)
Anyone is eligible for the new SAVE plan regardless of the type of loan you have or the income you make. This plan has the most generous monthly payment plan formulas and prevents unpaid interest accumulation. However, this could result in high monthly payments and/or other consequences for some.
Pros: Results in lower monthly payments for most borrowers because the protect income threshold is higher than all other plans. Your loan balance won’t grow because of unpaid interest as long as you make your monthly payments.
Cons: Save does not have a monthly payment cap which means your payment could potentially increase above the Standard 10 year plan amount if you have a high income and a small loan debt. If this happens to you, you can always go back to the Standard Plan.
I know, there are a LOT of options! So don't fret - one of the options will work for you and your income. If you want to make changes to your repayment plan, contact your servicer to understand your options and eligibility.
4) Enroll in Automatic Student Loan Payments
Don’t risk missing a payment or falling behind on your payments. Setup autopay through your loan servicer. Your payments will automatically be deducted from your checking account and you won’t have to remember to pay each month.
🥳 BONUS: Most servicers offer a small incentive (usually a decrease in interest) for enrolling in autopay!
5) Adjust Your Budget for Student Loan Repayment
With a little less wiggle room in the budget, you need to sit down and really analyze your income and output. I know it’s not fun, but as with budgeting at any time, the more we pretend to know the numbers (or just straight up avoid looking at our bank account), the less precise we are and the more room for error we allow.
Don’t do it. Just don’t.
Rip off the Band-Aid. Pour yourself a glass of wine or coffee or Diet Coke and take a hard look at the budget. Chances are, after three years of a payment pause, there’s room to cut something out of the budget without having to feel like your quality of life is changing dramatically.
Wrapping Up
Student loan payments are restarting, but that doesn’t mean your life is ending. Applying these tips for restarting your student loan payments puts you in control of your finances, not the other way around. THAT is a good feeling, my friend!
Want more hot money tips? Each week I slide into your inbox with helpful tips and tricks like these to help you get your money right and build wealth. Join the Wolfe Pack and get Wolfe Pack Weekly every Friday!
