Big adjustments are coming for borrowers. Student loan payments and subsequent interest have been on pause for three years (and through nine extensions). Now, that policy is officially expiring. Due to a provision in the debt ceiling deal, the U.S. Department of Education can no longer continue payment pause extensions. As such, interest will begin accruing on Sept. 1, 2023, and payment deadlines return in October. Exact due dates will vary based on the borrower’s account.
If you are concerned about student loan repayment, you are not alone. Here’s what we know from Nitro College:
1 in 4 Americans have debt from their education, an estimated 44.7 million people.
The average student loan amount is over $37,000.
The typical monthly student loan payment is nearly $400.
And, according to The College Investor, the 42-month pause saved borrowers $5,000 in interest and $15,000 in payments on average.
However, most borrowers do not know what they will owe in the fall. The Supreme Court has not yet issued a verdict on Biden’s plan for student loan forgiveness, which would cancel up to $20,000 in student loan debt per borrower.
Now is the time to take action. Here are the six ways to prepare for student loan repayments, recommended by Federal Student Aid:
1. Verify that your contact information is up to date.
Check your profile on your loan servicer’s website. Incorrect contact info could make you miss important deadlines and updates.
2. Look out for information on your next payment.
When the payments resume, your loan servicer will issue a billing statement that should include your payment due date, upcoming interest, and payment amount.
3. Make sure you are on the best repayment plan for your financial situation.
The U.S. Department of Education offers a variety of repayment plans. If your financial situation has changed since 2020, use the Loan Simulator to explore the repayment options available to you.
4. Act now to lower your monthly payment.
After evaluating your repayment options, you can choose the plan that results in a lower monthly payment. For example, an Income-Driven Repayment (IDR) plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. Or, consider consolidating your student loans to lower monthly payments.
5. If necessary, contact your loan servicer to apply for short-term relief.
If you are currently in a short-term financial bind, you could qualify for either a deferment or a forbearance to temporarily suspend payments. However, in most cases, interest will still accrue during this period—so it is best to explore various repayment plans, first.
6. Know what happens if your loan becomes delinquent.
When you don’t repay your loan for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, affecting your credit score.
If you continue to miss payments, your delinquent loan will go default after 270 days. When that happens:
You can lose your access to student aid.
Your credit score will be damaged.
The government can pay off your loan by taking:
your tax refund,
part of your Social Security benefits, or
up to 15% of your paycheck.
Visit studentaid.gov for more information.
Questions? We're here to help.
Jump-start your financial plan today. Contact our Certified Public Accountants to get started! Call 985-727-9924.
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