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Published: Sep 05, 2023 7 min read
Photo Illustration of an empty desk on top of a big pile of hundred dollar bills
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After a three-and-a-half-year pause, student loans are back: Millions of borrowers with federal student debt will be getting a loan bill in the coming weeks.

Interest on most federal student loans began accruing again Friday, and loan servicers will be sending out bills in September with due dates in October, according to Scott Buchanan, executive director at the Student Loan Servicing Alliance.

Many borrowers who were counting on loan forgiveness to reduce — or eliminate — their payments had those hopes quashed with the Supreme Court’s June decision to strike down President Joe Biden’s plan. That plan would have cut the number of borrowers re-entering repayment this fall. Instead, loan servicers are now resuming payments for nearly 40 million borrowers, a colossal undertaking.

To help ease borrowers back into repayment, the administration has launched a new, more affordable repayment plan and temporarily removed the most severe consequences of missing payments.

“People do have options and they do now have a more affordable repayment plan option than they would have had before the payment pause took effect,” says Victoria Jackson, assistant director of higher education policy at the Education Trust, a research and advocacy organization focused on educational outcomes.

Those efforts should go a long way toward heading off the worst case economic scenarios many experts predicted earlier in the pause.

Still, the return of payments after such a long hiatus represents a significant change in millions of Americans' month-to-month budget, particularly for households dealing with high housing or car payments they didn't have three years ago. For many borrowers, making student loan payments is nothing more than a bad memory at this point, while more recent graduates are bracing for their first loan payments ever.

Regardless of your borrowing situation, you can take steps now to prepare for payments to resume. Here's what to do:

If you're worried about paying your first bill

More than half of student loan borrowers said in May that they are expecting to miss at least one payment after the restart, according to a Morning Consult survey. Another report, from the Consumer Financial Protection Bureau, estimated that one in five borrowers have risk factors associated with an increased chance of falling behind on loan payments.

Borrowers will receive communications about repayment options as they get their first bills, Buchanan says. But if you’re worried about making your scheduled payments, you should get in touch with your loan servicer as early as possible. For many borrowers, an income-driven repayment plan, which sets your monthly bill based on your wages, will be the way to go. The less you earn, the less you pay.

With the new income-driven repayment plan, called Saving on a Valuable Education (SAVE), the formula for calculating monthly payments is more favorable than with other income-driven repayment plans, meaning many borrowers' payments will decrease. And if the payments aren't large enough to cover monthly interest, loan balances won't grow as long as monthly payments are made on time. Under this plan, low-income borrowers who make up to about $15 per hour do not have to make payments. You can apply online now.

Some benefits of the SAVE plan don't take effect immediately, but when it is fully implemented in 2024, it will also cap payments for undergraduate loans at 5% of a borrower’s discretionary income, down from 10%. Brian Leslie, director of financial planning at Edelman Financial Engines, says that should be a manageable amount for most workers unless there’s an issue with their financial planning or they are going through some sort of temporary hardship.

In addition to the SAVE plan, the Biden administration also announced a 12-month “on-ramp” period after payments resume, which Jackson says is a safety net for borrowers who can’t pay starting in October.

“What that means is people who don't make a payment or aren’t able to make the payments, they're going to be held harmless from the negative consequences of delinquency, and they won't be put into default if they miss payments,” Jackson says.

The on-ramp period will protect borrowers’ credit scores after the student loan payment restart. Interest will accrue, however, so it’s best to make your monthly payments with an income-driven repayment plan if that’s an option.

If you can afford your first bills and you're expecting to pay off your debt in full

Borrowers in good financial positions who can afford their bills were generally encouraged to make payments early on in the pandemic-era pause or save money and plan to make a big payment when the pause ends.

Later on, the uncertainty around loan forgiveness complicated the picture, since many borrowers didn't want to make extra payments on debt that might get forgiven. But now, if you owe a substantial amount and you're not anticipating forgiveness through an income-driven plan or Public Service Loan Forgiveness, then it makes sense to put extra money toward paying off your debt, assuming you've built up your savings and don't have other high-interest debts. (While Biden has said his administration will pursue a different path toward loan forgiveness, that's not a guarantee, and it may end up as a much more limited plan than the one the Supreme Court struck down.)

All of this is to say: This is your final chance to take advantage of the interest-free period by making one more extra payment.

If you put money in a high-yield savings account or something similar during the pause to use for your student loans, you can make a lump-sum payment now. “You've built up this chunk of money,” Leslie says. “You can now apply that to the student loans — knock the principal down.”

It would technically have been best to make extra payments or a lump-sum payment before interest started to accrue again, but loan interest accrues daily, so any time in early September is still helpful.

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