Prepare for your student loan bill and learn about options to help with student loan debt
After a three-year pause, federal student loan repayments started up again on October 1. For nearly 45 million borrowers, the added burden of student loan payments may make life a lot harder. Today, many Americans have difficulty managing their budgets because of housing expenses, rising prices, growing families and job changes.
In June, the Consumer Financial Protection Bureau warned that 1 in 5 student loan borrowers could struggle when repayments began. One in 13 borrowers is currently behind on payments.
Fortunately, there is help. New programs can help borrowers with repaying loans, avoiding late fees, canceling or forgiving loans, and starting fresh with defaulted loans.
New options for student loan repayment
After leaving college, borrowers are automatically placed in the Standard 10-year repayment plan for their loans, but it’s usually the most expensive option.
Recently, the Biden Administration introduced a plan called the Saving on a Valuable Education (SAVE) plan. This plan could cut many federal student loan borrowers’ bills in half once all benefits begin.
The SAVE plan bases payments on a borrower’s income and family size, regardless of the size of the debt. This is similar to other income-driven repayment plans (IDR plans). The SAVE plan differs from the Revised Pay As You Earn Repayment (REPAYE) plan it replaces in three specific ways.
First, the SAVE plan will reduce bills by evaluating and excluding more of the borrower’s income from the payment calculation. It will increase the income exempted to 225% of the relevant federal poverty guideline. Most IDR plans calculate discretionary income as the difference between the borrower’s adjusted gross income and 150% of the poverty guideline.
Next, beginning in mid-2024, the SAVE plan will cut payments from 10% of borrowers’ monthly discretionary income to just 5% for undergraduate loans. Grad loans will be calculated at 10% of discretionary income.
Finally, it will eliminate negative amortization. This will prevent interest from growing and making borrowers owe more than they initially borrowed. As long as payments are made on time, interest won’t accrue.
The new plan is available for people with direct subsidized and unsubsidized loans, direct consolidation loans, and graduate and professional students with Direct PLUS loans. Borrowers with federal Parent PLUS loans may use the double consolidation loophole until July 1, 2025. Using that strategy can allow Parent PLUS loans to be repaid through the more affordable SAVE plan. People already enrolled in the REPAYE plan will automatically transfer into the SAVE plan.
The SAVE plan or IDR plans can reduce borrowers’ monthly payments to as low as $0. Every person’s finances vary, so carefully review each plan and calculate which will fit your budget and needs best.
If you need help understanding your student loans and programs, FCAA can help. Our student loan counselors will help you find the best way to repay your loans and guide you through the process.
Late payments don’t matter as much – for now
Paying your bill on time remains important. To help people get back into the routine of paying their loans, the Education Department has extended some grace.
From now until September 30, 2024, late or missed payments won’t be reported to the credit bureaus. This means lenders will not label you as delinquent or report your credit debt to collections.
However, any late payments will enter forbearance and automatically be tacked onto the end of your loan term and interest will continue to accrue on the account.
Cancellation of some student loans
About 800,000 federal student loan borrowers will have their remaining loan balances canceled to address past issues with loan programs. Many of these borrowers have been notified. Some will receive notifications through the end of 2023.
Defaulted loan? Get a fresh start
The Fresh Start program gives special benefits to people who defaulted on their student loans before payments paused in 2020. You can only use the temporary program once, and it can really help your credit. Fresh Start will transfer the defaulted loan to a loan servicer and then clear the default from your record. It will also restore access to federal student aid loans and grants.
To use the Fresh Start program, contact the Education Department’s Resolution Group by clicking here or calling (800) 621-3115.
You may have a new loan servicer, so update your contact info
During the loan repayment pause during the Covid-19 pandemic, some lenders who processed payments for the government left the business. You should have received information about the change. If you don’t remember who your new loan servicer is, click here to find out. Then, click on the “My Loan Servicers” tab.
Remember to update your loan servicer with your current address and any information that has changed over the past three years. Your servicer will also be able to tell you how much you owe and when payments are due.
Still feeling overwhelmed with student loan repayments?
Adding a loan payment to your budget may seem impossible, but our student loan counselors can help. FCAA members are non-profit agencies ready to assist you. Our members help hundreds of thousands of people each year with student loan repayment plans, financial counseling and debt management.
Click here to learn more about how certified counselors can help you manage your student loans.