Payments and interest rates on federal student loans have been paused since March 2020, but that pause is about to come to an end. That means that interest on loans will begin accruing on September 1. 2023, and payments will be due in October of 2023 for most borrowers.
It was disappointing news for the millions of Americans still holding out hope for federal loan forgiveness, but it didn’t stop there. On June 30, 2023, the Supreme Court blocked President Biden’s student debt cancellation plan, arguing that the administration lacked authorization under the HEROES Act to forgive up to $20,000 in student debt per borrower.
For those of us who hoped to have $20,000 in student loan debt wiped away, the outlook is grim; but not all the news is bad news. Not long after the ruling, Biden announced a 12-month “on-ramp transition period” for borrowers who are unable to make the minimum monthly payments. “During this period, if you can pay your monthly bills, you should,” Biden said in a press conference. “But if you cannot, if you miss payments, this on-ramp temporarily removes the threat of default or having your credit harmed, which can hurt borrowers for years to come.”
The takeaway is if you are holding student loans—even if you plan to pursue the on-ramp opportunity—it’s a good idea to prepare for repayment today.
Why it Matters
If you hold federal student loans and don’t resume payments in October, you risk going into default, which can damage your credit and hurt your ability to borrow in the future. It’s also important to keep in mind that you must take action to set up payments before the first due date to avoid missing statements and billing dates.
What to Do to Prepare Yourself
- Update your contact information with your loan servicer. Before the end of August, go to StudentAid.gov and log in or register to make sure you have an online account set up with each of your loan servicers.
- Build a budget. If you have never made payments on your student loans (or haven’t paid in years), it may be a bit of a shock to add the expense to your budget. Sit down and outline how much money you have coming in and going out each month. Look for areas where you can cut back and determine what you can reasonably afford to pay on student loans when the time comes.
- Choose a debt-reduction strategy. In the weeks remaining before loan payments resume, try to pay down or eliminate other debts. There are countless debt-reduction strategies, but the most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. If you choose to pay off the high-interest debts first, you will save more money over the long run, but paying off low-balance debts first can help you see progress and maintain momentum. Choose the strategy that best suits your financial habits and lifestyle.
- Optimize your debts for the lowest rates possible. If you are juggling additional debts (like credit cards, a mortgage, or other loans), those payments can add up quickly. Talk to your credit card provider or loan holder to see if you can consolidate your debts or negotiate a lower interest rate. If you have a Maps loan and are concerned about making payments, talk to one of our lending experts about refinancing or revising your payment schedule.
- Take advantage of affordable repayment plans. The new Saving on Valuable Education (SAVE) Plan has replaced the existing Revised Pay As You Earn (REPAYE) Plan. If you were a borrower enrolled in the REPAYE plan, you will automatically get the benefits of the new SAVE Plan, but you may need to recertify. The SAVE Plan calculates your monthly payment amount based on your income and family size with the aim of providing the lowest monthly payment possible to all student borrowers. According to FSA, the changes to the new plan mean that “you will not owe loan payments if you are a single borrower earning $32,800 or less or a family of four earning $67,500 or less.” If you earn more than these amounts, you will still save at least $1,000 per year, compared to the old income-driven repayment plans.
- Don’t wait until the last minute. There will be roughly 44 million borrowers resuming payments this fall, which means there could be long waits for personal assistance. Act now to make the transition as smooth as possible—especially if you believe you will need revised repayment plans, or if you were in forbearance on one or all of your loans before the pause.
- Watch out for scams. State and federal officials are also warning borrowers to watch out for scammers who charge a fee to help you sort out your student loans. If you are having difficulty paying your student loans, contact your loan servicer. They should be willing to work with you (for free) to sort something out. If you get an email, letter, text message, or phone call about loan assistance, be on the lookout for red flags. Watch for aggressive language like, “Act immediately to qualify for student loan forgiveness before the program is discontinued” and never give anyone your StudentAid.gov or bank log-in information.
If Your Loans Were Already in Default
If your student loans were in default before the March 2020 freeze, you may qualify for the Fresh Start Program, which can eliminate the negative impact of a student loan default and allow you to start making payments with a clean slate.
This program will last for one year after payments resume and provides borrowers with the following benefits:
- It restores access to income-driven repayment (IDR) plans
- It re-establishes eligibility for federal student aid programs like Pell Grants
- It protects borrowers from negative credit reporting and collections
- It gives borrowers the option of qualifying for student loan rehabilitation if they default later on
The Fresh Start Program is not automatic, so if you think you may qualify, contact your loan holder and let them know you want to take advantage of the program. Not all borrowers or loans will be eligible for the program, but you can visit myeddebt.ed.gov or call 800.621.3115 to find out.
The Bottom Line
If you have questions, we want to help. That’s why we have partnered with GreenPath Financial Services to offer a FREE webinar that can answer your student loan questions and help you prepare to make payments. The webinar will take place on Tuesday, August 15 at 5 pm and is open to any Maps members who want to attend. If you can’t make the webinar time, register anyway and GreenPath will send you a recording of the session that you can view at any time. GreenPath also offers free one-on-one counseling to help you manage your finances and reach your financial goals.
Remember, you don’t have to tackle this alone. If you are concerned about a loan you currently have with Maps or would like to apply for a loan to consolidate your other debts, talk to one of our lending experts by calling us at 503.588.0181 or by visiting your favorite branch.