Beyond Forgiveness: Preparing for Student Loan Payments Resumption

With student loan repayments set to resume in October after a multi-year pause during the pandemic, borrowers need to be proactive in preparing for potential financial adjustments.

Our first recommendation would be to actively look into your eligibility for various Student loan Forgiveness programs that could lower your payments or discharge your loans. Check your loan forgiveness eligibility.

Should you be ineligible for any of the forgiveness programs offered by the government, utilizing grace periods wisely can be crucial during this time. Here is a quick guide on how you can strategize repayment plans and transition smoothly once the pause is lifted.

1. Update your contact info:
Ensure that your contact information is up to date on both your loan servicer's website and your StudentAid.gov profile. Accurate contact details are essential to avoid missing any crucial updates regarding your student loan payments.

2. Get info about your next payment:
Once the payment pause ends, your loan servicer will send you a billing statement or notice with information about your next payment. This will include the payment due date, upcoming interest, and the payment amount. You will have at least 21 days from the statement's issuance to make the payment. If your loan servicer provides this information online, you can log in to their website to find out your upcoming payment amount. Otherwise, you can contact them through call or email.

3. Ensure the best repayment plan:
Consider whether your financial situation has changed during the COVID-19 emergency and evaluate if you are on the best repayment plan for you. This Loan Simulator can help explore various repayment options and offer guidance on selecting the most suitable plan. Even if you choose to change your repayment plan now, keep in mind that you can switch again later if needed. Options like income-driven repayment plans can offer payments as low as $0 per month based on your income.

4. Lower your monthly payment:
After assessing all repayment options, you may choose to apply for a specific plan that results in a more affordable monthly payment. If you are already on an income-driven repayment plan and your income recently changed, consider recertifying your information to determine if you qualify for a lower payment amount. Consolidating your federal student loans might also be an option to reduce your monthly payments, but carefully weigh the pros and cons before deciding.

5. Seek short-term relief if needed:
If you cannot find a repayment plan that suits your current financial situation, you can request short-term relief, such as deferment or forbearance, to temporarily pause or lower your payments. Before making such a request, use the Loan Simulator to understand how this will affect your loans and payments. Keep in mind that normal deferment or forbearance allows interest to accrue, and these options can impact loan forgiveness eligibility.

6. Understand the consequences of non-repayment:
Missing a payment can lead to delinquency, which negatively affects your credit score and makes it harder to access credit. Defaulting on your loan can result in severe consequences, including losing access to more student aid, further damage to your credit score, and the government withholding tax refunds or part of your Social Security benefits to repay the loan.

7. Know the difference - Subsidized vs. unsubsidized loans:
Understanding the distinction between Direct Subsidized Loans and Direct Unsubsidized Loans is vital. Subsidized loans do not accrue interest while borrowers are in school or during specific deferment periods, as the Department of Education covers the interest. In contrast, unsubsidized loans accumulate interest immediately, and borrowers are responsible for all accrued interest. Income-driven repayment plans are preferable to deferment or forbearance, as interest continues to accumulate during those periods.

In conclusion, as the student loan payment pause comes to an end, borrowers must plan ahead and choose the most suitable repayment strategy for effectively managing their student loan debt. Seeking guidance from financial advisors or credit counselors is recommended, as they can offer personalized strategies and debt management advice tailored to individual financial situations. In addition, exploring repayment options and understanding the consequences of non-repayment are critical steps to navigate this transition successfully. By being well-informed and proactive, borrowers can navigate the resumption of student loan payments with confidence.