Preparing For Student Loan Repayment

Are you ready to add your student loan payments back into your budget? Prepare using these helpful tips.

After the three-plus year pandemic-era pause on student loan payments, the Biden administration provided an “on-ramp period” through September 30, 2024, to shield borrowers from the credit-damaging consequences of missing a payment. Now that this grace period has come to an end, it’s time to prepare to resume payments if you haven’t already.

What You Can Do To Prepare  

Know Your Loan Details  

After a long hiatus from student loan payments due to the chaos caused by COVID-19, it’s understandable if the details of your loan are a bit fuzzy. But knowing who your loan servicer is, how much you owe, your interest rate, etc. is important when determining your next steps.

You can find everything you need to know by logging in to the Federal Student Aid website using your FSA ID. If you don’t already have an account, you can create one or if you’re having trouble logging in, you can call 800.4.FED-AID.

Research Your Options  

Repayment Plans 

There’s a good chance your current circumstances are different from what they were four years ago – considering COVID-19 and the economy, not to mention you may have moved, landed a new job, or even gotten married. The good news is whether you selected or were assigned your repayment plan, you can change it at any time.

The best place to start when deciding on a repayment plan is the U.S. Department of Education’s Loan Simulator. This tool will tell you which repayment options your eligible for, your estimated monthly payment, and how much you’d be paying overall.

Here’s a brief rundown of the different repayment plans available:

1. Standard Repayment Plan: All borrowers are eligible for this plan; payments are fixed and will be made over a ten-year period. You’ll usually pay less over time than on other plans but if you’re seeking Public Service Loan Forgiveness (PSLF) this is NOT a good option for you.

2. Graduated Repayment Plan: All borrowers are eligible for this plan; payments are lower at first and then increase every two years over a ten-year period. This is a good option if you want smaller payments up front, but keep in mind you’ll pay more in interest than with the standard plan.

3. Extended Repayment Plan: If you’re a Direct Loan Borrower, you must have more than $30,000 in outstanding Direct Loans to be eligible. Payments may be fixed or graduated, and will be paid over a 25-year period. Your monthly payments will be lower but you’ll pay more in interest than with the first two plans.

4. Income-Driven Repayment (IDR) Plans: There are four IDR plans that can lower your monthly payment based on your income and family size, with any remaining balance forgiven at the end of the repayment period. These options can help protect against pay cuts, furloughs, and unemployment, giving you the opportunity to adjust your monthly payment – sometimes to as little as zero if your income is low enough.

Each plan has it’s own eligibility constraints, involves an application process, and requires you to recertify your income and family size annually.

• Saving on a Valuable Education (SAVE) Plan, formerly the REPAYE Plan, provides the lowest monthly payments of any IDR plan. Another bonus, your loan balance won’t grow due to unpaid interest as long as you’re making your monthly payments.
• Pay As You Earn (PAYE) Repayment Plan is best for those who don’t expect their income to increase; it’s also an eligible repayment plan for those seeking to qualify for Public Service Loan Forgiveness. But the biggest difference from the other plans is that it limits capitalized interest to 10% of your balance.
• Income-Based Repayment Plan is unique because its features change depending on if you took out your loan before or after July 1, 2014. If you borrowed before that date, payments cap at 15% of your discretionary income and your loan is forgiven after 25 years. After that date, the numbers improve, decreasing to 10% and 20 years.
• Income-Contingent Repayment Plan costs more each month than other IDR plans but is the better option if you have a parent PLUS loan or a consolidation loan that includes a parent PLUS loan.

Temporary Relief  

If you’re in a financial bind and can’t afford your student loan payments, you may qualify for a deferment or forbearance. Both can postpone your student loan payments helping you to avoid student loan default. However, these are meant to be short-term solutions and can have drawbacks – for example, you’ll likely see interest still accrue and any progress toward loan forgiveness will stop.

Contact your loan servicer to discuss deferment or forbearance as well as other repayment plans to find out which is the better option for you.

Student Loan Forgiveness

In certain situations, you can have your federal student loans forgiven, canceled, or discharged. This means you won’t have to pay back some or all of your loans. The two most common routes for forgiveness are Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) forgiveness.

Save With Auto Pay

One benefit you’ll like the most from setting up auto pay for your student loans is that all federal loan servicers and most private lenders will provide a 0.25% discount on your interest rate – saving you money. Automatic payments can also help ensure on-time payments, which can help boost your credit score.

Anything to do with your student loan payment is handled by your loan servicer. To set up auto pay, you’ll need to sign in to your account or contact them directly.

Summary  

There’s a lot to consider now that the grace period for student loan borrowers who miss a payment has ended. Take the time to carefully think through your options in order to ensure you’re in the best possible position to restart your student loan payments.