If you’ve gotten used to the pause in federal student loan payments instituted at the start of the Covid-19 pandemic, brace yourself: payments are resuming again in the spring. That may come as a surprise, but you still have time to come up with a plan. Here’s what you need to know about federal loan repayments, and what you can do to prepare.
When are federal loan payments restarting?
Federal loan payments will be officially resuming in May 2022. The exact date when your specific payments will resume depends on your loan servicer. Log on to your loan servicer account to see when the next due date is. If you have multiple loan servicers, log onto each account because they may each have a different due date.
Loan payments resuming aren’t the only new change for borrowers. Some borrowers will have new loan servicers in 2022. If your loan servicer is Navient, then your loans will be transferred to Aidvantage. To prepare for this change, log onto your Navient account and download your most recent monthly statement and tax documents just in case something goes wrong when your loans are transferred.
If you have a new loan servicer, log on and add your bank account details so you can start making payments.
How to prepare for loans restarting
Decide what you can afford
Since it will be almost two years since most borrowers have made student loan payments, they may have forgotten how much they pay every month. Log on to your loan servicer account and see what your monthly payment is. If you have multiple loan servicers, do this for each one.
Next, go through your monthly income and expenses to see how much you can afford to pay. If you can afford your monthly payments easily, then you have nothing to worry about. But if you can’t afford the full payment, you may have to change your payment plan.
Switch payment plans
If your income dropped during the pandemic or you incurred other debts, you may not be able to afford what you were paying before. Fortunately, federal student loans have many payment options to choose from.
If you need a lower payment, consider switching to an income-driven repayment (IDR) plan. IDR plans use your income, household size, and where you live to determine the monthly payment. Borrowers with high loan balances and low incomes can see a huge difference if they choose an IDR plan. And if you have children, are unemployed, or have a low enough income, your payments will be $0.
There are four IDR plans to choose from, and the repayment terms are either 20 or 25 years, depending on the IDR plan and the type of loans you have. After the term is completed, any remaining balance will be forgiven. Normally, the amount forgiven will be subject to income taxes, but if your loans are forgiven between 2021 and 2025, the amount will not be taxed. Many experts believe this will become a permanent feature of IDR plans.
Besides IDR plans, the federal government also offers graduated and extended repayment plans. Like IDR plans, both of these plans will lower your monthly payment – but you’ll be ineligible for any loan forgiveness programs.
Before choosing a plan, you can use the official loan simulator to see how your payment may change depending on the type of plan. That should help you pick an IDR plan that fits your budget.
Sign up for automatic payments
Signing up for automatic payments could help you save on interest. When you choose automatic payments, the interest rate will drop by .25%. Plus, you’ll never have to worry about missing a payment, accruing late fees, or suffering a negative mark on your credit report.
According to the Department of Education, if you had automatic payments set up before the Covid-19 forbearance program, you’ll likely have to set up automatic payments again. Borrowers with multiple loan servicers will have to sign up for automatic payments with each individual servicer.
Apply for deferment or forbearance
If you can’t afford any student loan payments, even on an IDR plan, the next option is to apply for deferment or forbearance. These programs let you skip payments while still keeping your loans out of default.
However, if you apply for deferment or forbearance, you will likely accrue interest during that time. When the federal government first offered the Covid-19 forbearance program, the biggest selling point was that interest would be paused. This is different from most deferment and forbearance programs where interest is still charged.
The only exception is if you have subsidized student loans and qualify for deferment. If this is the case, then you won’t accrue interest during deferment. There are specific deferment programs that you have to be eligible for, and your loan servicer will determine if you qualify.
If you don’t qualify for deferment or only have unsubsidized loans, then you’ll still be charged interest while you’re not making payments. And at the end of the deferment or forbearance period, that unpaid interest will be added to the principal balance and subsequently increase your monthly payments.
Borrowers with multiple loan servicers will have to apply for deferment or forbearance with each loan servicer.
Disclaimers
