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Illustration of the concept of a student pressing  play  on resuming student loan payments
Rangely GarcĂ­a for Money

The federal government has been crying wolf on the resumption of student loan payments for so long, many borrowers may have forgotten what they even owe by now.

But after more than three years and eight extensions of the pause on monthly repayments and interest, the U.S. Department of Education has confirmed that the process to resume debt collection will begin no later than the end of June — for real this time.

Education Secretary Miguel Cardona testified before a Senate committee this month that payments will restart either 60 days after June 30, or 60 days following the U.S. Supreme Court’s ruling on President Joe Biden’s student loan forgiveness plan. While the precise timeline is still in flux, borrowers likely will start receiving monthly bills again in August or September.

Despite the unprecedented hiatus, data shows that the transition to resuming payments will likely be a rough one for many borrowers. New York Federal Reserve data from last year indicates that only about 18% of borrowers have been making payments during the forbearance period. What’s more, the rising cost of living has more borrowers feeling less financially secure now than they were two years ago.

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Borrowers are worried about repayment

Student loan borrowers are struggling financially ahead of the return of monthly payments, research from Pew Charitable Trusts found. In a survey conducted in late 2022 to assess borrowers’ attitudes regarding their finances overall, the nonprofit found that the majority of borrowers (53%) reported feeling “not too” or “not at all” financially secure.

That’s a 13% increase from when the same group was surveyed in 2021, according to Brian Denten, who works on Pew's student borrower success project.

“Despite the pause on repayment, many borrowers are signaling that they're experiencing some pretty significant financial distress that could make that transition back into repayment challenging,” Denten tells Money.

Thirty-eight percent of borrowers said they felt financially worse off in 2022 compared to the previous year, a big leap from the 22% who said the same in 2021. The increases coincide with rising inflation, which topped 9% last summer.

Denten says the first few months of transitioning back to monthly payments will be crucial for borrowers, many of whom may struggle with delinquency and eventually default on their debt if they’re not connected to the right repayment plan (stay tuned for more on that in a bit). Education Department officials, too, have been sounding the alarm about the likelihood of a spike in defaults, citing evidence from previous, shorter periods of administrative forbearance following natural disasters.

As distraught as some borrowers may be, they shouldn’t bank on Biden’s debt relief plan wiping out their balances. Experts predict that the Supreme Court, with its conservative majority, is unlikely to rule in favor of the plan — and even if it did receive a green light, the New York Fed estimates nearly 60% of federal borrowers would still owe money.

That means regardless of what happens with student loan forgiveness, millions of borrowers will soon have to get back into the habit of managing a monthly student loan bill. Here's how to get prepared:

1. Find out what (and who) you owe

You should start by getting yourself reacquainted with your student loan servicer and the details of your debt. (If you're new to making monthly payments, loan servicers are the companies that manage student loan repayment for the government.)

Several loan servicers ended their contracts with the Education Department in the past three years, including Navient and Pennsylvania Higher Education Assistance Agency (aka FedLoan), which means about a third of borrowers will be making payments through a different company than they were before the pandemic pause. Most of these servicing transfers have already happened, and you should have been contacted with next steps. If you haven’t already, follow your new servicer's instructions for creating an online account, which allows you to keep track of your loans and set up automatic payments.

There isn't much more required on the borrower's end when it comes to changing servicers, though it's always smart to check your loan details to ensure they were transferred over correctly.

If you’re still not sure who your servicer is, you can find out by logging into Federal Student Aid with your FSA ID. This portal will show you your loan servicer and loan details — the terms of your loan, any benefits (like debt forgiveness), and interest rates should be the same as they were with your old servicer.

Review and update your personal information accordingly, and check that your balance and payment history are accurate. You can cross-confirm by comparing the information in your online account with your credit reports.

Keep in mind that the repayment system is slated to undergo a massive overhaul next year, part of which entails a central servicer portal on StudentAid.gov that will streamline the monthly payments process. The department says borrowers can look forward to improved security and functionality, though officials haven’t announced exactly when that will happen.

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2. Choose an ideal repayment option

A lot can change in three years — maybe your income increased, or you lost your job during the pandemic and you’re still recovering financially. Whatever the circumstances, it can't hurt to explore the different student loan repayment options.

The borrowers who are (or expect to) struggle to afford their monthly bills may want to consider one of the four income-driven repayment (IDR) plans offered by the federal government. These plans base your monthly payments on your earnings and family size, and you can quickly apply for one through your servicer’s website.

In some cases, income-driven plans can lower monthly payments to $0, and after 20 to 25 years of payments (depending on the plan), your remaining balance can be forgiven. You can calculate what your monthly payment would be under the various plan options with the Education Department’s loan simulator.

There is a catch, however: Your loans are still accumulating interest with income-based plans, and the payments you make on an IDR plan often aren't enough to cover that interest. That means your debt will grow each month even though you're making regular payments. Plus, unless you have a large debt balance and a career where your salary will remain low for a couple decades, you will likely pay off your balance before reaching the forgiveness stage in the existing plans.

So if you can afford a standard repayment plan at any point of your student loan journey, opt for that instead of building up more debt. Under the standard plan, your monthly payments are based on how much you owe, and it's designed so that you'll pay off your debt after a period of 10 years.

One final note here: You may have determined that income-driven plans didn't make sense for you in the past. But earlier this year, the Education Department announced new regulations that would amend the terms of the Revised Pay As You Earn (REPAYE) income-driven plan, reducing payments on undergraduate loans by half. Individual borrowers who make less than about $30,600 a year would see their monthly payments lower to $0, as would any borrower in a family of four making less than $62,400. The proposed regulations, which the department says it will roll out as part of the system overhaul over the next few years, would also keep unpaid interest from accumulating.

3. Check your eligibility for loan forgiveness

Again, borrowers shouldn’t count on Biden’s sweeping debt relief plan coming to their rescue, but the Education Department has made changes during the pandemic forbearance that will simplify the path to forgiveness through income-driven repayment. As mentioned above, income-driven plans have a built-in path to forgiveness after you make up to 25 years of qualifying payments. In practice, though, few borrowers have benefitted from this type of forgiveness.

Now, the department is conducting a one-time payment adjustment (also known as the IDR waiver) to "address longstanding issues with the lack of information given to borrowers about the possible benefits of IDR."

Dan Rooker, a consultant for Student Loan Planner, says the waiver brings eligible borrowers closer to forgiveness because every month spent in repayment since a borrower left school counts as credit. Some periods on forbearance and deferment will also count.

“The income-driven repayment waiver allows borrowers to capture the past when they weren't on an income-driven plan, when they may not have made a payment on time, or when they may have made a payment for less than the amount due,” he says.

The result? The Education Department says an estimated 3.6 million borrowers will get at least three years of credit toward forgiveness and roughly 40,000 borrowers will have their loans completely forgiven through the waiver. The process is automatic for most borrowers, with payment counts updated some time in 2024. The Education Department says your servicer will contact you when your account has been adjusted.

The one exception is for borrowers who have privately held Federal Family Education Loans (FFEL) or Perkins loans. If that's you, you’ll need to apply to consolidate them before the end of 2023 to benefit from this recount.

4. Make a budget and get back into the habit of monthly payments

The wiggle room borrowers have enjoyed during the payment pause is about to disappear, and with the typical student loan payment falling between $200 and $299, many will find it difficult to readjust to making monthly payments. Financial planner Brittany Wolff, CEO and founder of Wolff Financial, says borrowers can start setting aside payments into a savings account now to get used to their new monthly budgets.

Even better: Start or continue making payments before repayment resumes to take advantage of 0% interest while it lasts. This should be a priority for any borrower who anticipates paying off their full balance.

If you’re not already tracking your spending, get in the habit of doing so — many banking apps now offer built-in tools that capture your spending and generate insights and suggestions for your budget.

“You have to measure what you're spending,” Rooker says. “If you don't use a budgeting app, you can look at your checking account statement.”

Taking a good look at your spending is essential as you reacclimate to making monthly payments. If you don't know your cash inflow and outflow, you won't be able to identify areas that need to be reduced or rerouted to pay down your debt. So familiarize yourself with the numbers now — it will make the transition to repayment in the fall easier.

5. Consider the Fresh Start program if you were in default

Before the pandemic forbearance started in March 2020, roughly 8 million borrowers were in default, meaning they hadn't made a student loan payment in at least 9 months. When payments resume, these borrowers have a unique opportunity via the Fresh Start program, says Drew Schlotter, a wealth manager with Woodson Wealth Management.

The one-time option moves loans from default resolution to a loan service provider, returning borrowers to "in repayment" status and removing the default from their credit history.

Borrowers then choose which repayment plan they want. Fresh Start provides other benefits as well, like eligibility for additional federal student aid and long-term loan forgiveness options. It can also stop debt collection efforts and restore your ability to rehabilitate federal loans going forward. (You can find more information on how to access the program here.)

“It is important that borrowers understand this is a once in a lifetime opportunity for those in default, and they should not expect a second chance at this in the future,” he says.

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