If you currently have student loan debt, you and 44 million other Americans in the U.S. enjoyed a 3.5-year repayment moratorium during the COVID pandemic. That moratorium is set to expire on August 31, 2023, at which time interest will again start accruing on a whopping $1.6 trillion in student debt; required payments will resume in October.
While it was probably easy to adopt an “out of sight, out of mind” mentality regarding your student loans, it’s now important that you revisit your loan, its terms, and alternatives that might exist for repayment to ensure that you have the plan that is right for your current circumstances, which may have changed in the past 3.5 years. Let’s look at some things to know and steps to take for repaying your federal loans at this critical juncture.
Check the Status of Your Student Loan(s)
It’s quite possible that while your payments were on hold, your direct, FFEL or PLUS loan was transitioned to a new provider. You see, various companies manage federal student loan repayment on behalf of the government through contracts with the Department of Education. If those contracts end or the government reassigns the loans to a different servicer, the terms of the loan don’t change, but the borrower will now be making payments to the new loan manager. If that’s true of your loan, you were probably notified about the change, but it could easily have been overlooked, so you will need to assess who your current loan manager is.
A site that might be worth bookmarking for assistance with your loan repayment is studentaid.gov. It is a major asset for gathering information and making adjustments to the loan repayment process. You will be able to determine who your loan servicer is, review current terms and payment amounts, review other repayment options, as well as make any changes to your account information. For example, if you moved during the pandemic, your provider may not have your current address, or if you had payments automatically deducted from your bank account, you will need to set up the auto-withdrawals again. If you have a new loan servicer, you will need to create an account with them and provide all relevant information, as well.
Review Your Student Loan Repayment Plan Options
A primary reason to review your current loan is to determine if you can save money by qualifying for a different repayment option.
The majority of student loans default into the “Standard Repayment” category, which consists of 120 fixed payments over a period of 10 years – or 25 years if your debt is more than $30,000. This option is not tied to your income, so regardless of what you make annually, your payment remains the same. If you are currently enrolled in this plan, it may no longer be the best one for you if you experienced changes in your job, income or marital status over the past few years.
Realizing the struggle that many borrowers are facing in repaying their loans, the government now has eight repayment options for federal student loans. Each repayment plan outlines who is eligible for the plan, what types of loans are covered, and the terms of repayment. It’s important to compare the long-term pros and cons of each plan. While income-driven repayment plans usually lower the monthly payment required, they generally lengthen the term of the loan. That affects the amount of interest paid, which can potentially prove more costly for the borrower.
Here are the basics for each option:
- All borrowers are eligible for this plan.
- Payments are a fixed amount that ensures your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
- All borrowers are eligible for this plan.
- Payments are lower at first and then increase, usually every two years, and are for an amount that will ensure your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
- Direct Loan borrowers with more than $30,000 in outstanding debt are eligible.
- Payments may be fixed or graduated but will ensure that your loans are paid off within 25 years.
- Saving on a Valuable Education (SAVE) Plan (formerly the REPAYE Plan)
- Any Direct Loan borrower with an eligible loan type may choose this plan.
- Monthly payments will be 10 percent of your (and your spouse’s) discretionary income.
- Any outstanding balance on your loan will be forgiven if not paid in full after 20 years (loans for undergraduate study) or 25 years (loans for graduate or professional study).
- Pay as You Earn Repayment Plan (PAYE)
- Must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.
- Monthly payments will be 10 percent of discretionary income, but never more than you would have paid under the 10-year Standard Repayment Plan.
- Income-Based Repayment Plan (IBR)
- Debt must be high relative to income.
- Monthly payments will be either 10 or 15 percent of your (and your spouse’s if filing jointly) discretionary income, but never more than you would have paid under the 10-year Standard Repayment Plan.
- Any outstanding balance on your loan will be forgiven if not paid in full after 20 years or 25 years, depending on when you received your first loans.
- Income-Contingent Repayment Plan (ICR)
- Any Direct Loan borrower with an eligible loan type may choose this plan.
- Monthly payments will be the lesser of 20 percent of your (and your spouse’s if filing jointly) discretionary income, or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.
- Any outstanding balance will be forgiven if not paid in full after 25 years.
- Income-Sensitive Repayment Plan
- Available only for Family Federal Education Loans (FFEL), which are not eligible for Public Service Loan Forgiveness (PSLF). Eligible loans include Subsidized and Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.
- Monthly payments are based on annual income, but the loan will be paid in full within 15 years.
Should You Consolidate?
If you have multiple federal student loans, it may be advantageous to consolidate them into a single Direct Consolidation Loan to simplify repayment, especially if you are making separate payments to multiple loan servicers. Not only will this reduce the number of payments you make, but it could reduce the monthly cost, as well. It’s important to explore the advantages and possible disadvantages of loan consolidation, however, before you make that decision.
Utilize the Student Loan Simulator Tool
The options can seem overwhelming, and you may want to throw up your hands trying to figure out which plan is right for you. The good news is that there is a loan simulator tool on the studentaid.gov site that helps you identify the best repayment plan for you based on information you provide. It also calculates an estimate of your monthly payments. However, keep in mind that the tool can’t predict payments with 100% accuracy and that the simulator makes various assumptions as it calculates your repayment amounts. It is for informational purposes only as you carefully review all of the loan repayment options and make decisions that align with your current circumstances and personal financial goals.
Determine Your Eligibility for Student Loan Forgiveness or Credit
The U.S. Supreme Court recently struck down the Biden Administration’s one-time student debt relief program that would have cancelled up to $20,000 in federal student loan debt for qualifying borrowers. However, there are other debt relief programs that are still viable and/or under review, especially for older borrowers. For example, the Education Department has approved $39 billion in student loan forgiveness for over 800,000 borrowers in an effort to remedy ongoing problems with IDR plans, or to benefit borrowers who may have been paying for decades but didn’t have access to an IDR program. The government introduced some other options for reducing debt, as well.
- Forgiveness for remaining debt on 20-25 year loan
IDR plans are supposed to result in eventual loan forgiveness for borrowers after 20 or 25 years in repayment. However, a variety of administrative and loan oversight issues resulted in many borrowers not receiving that debt cancelation.
The Biden administration has agreed to remedy that situation. According to the IDR Account Adjustment, the administration will ensure that those who have been paying on their loans for 20-25 years under an IDR plan (depending on the degree earned) will have their debt removed. Beyond that, the IDR Account Adjustment will also credit borrowers with loan payments that were not made under an IDR loan forgiveness term. So, any past period of repayment on nearly any kind of federal student loan can count towards the loan as far back as July 1994, allowing the borrower to reach the 20-25 year repayment threshold sooner and become eligible for loan forgiveness. Even past periods of deferment or extended forbearance periods may be counted, as can recent periods of default, provided borrowers get out of default by the end of the year.
Many borrowers have already been notified of their eligibility for debt forgiveness and many more will be in the near future. Keep in mind, however, that it may take several months before balances are erased.
- Public Service Loan Forgiveness
A sub-set of the above loan forgiveness is dissolution of debt for those working in public service jobs.
Another recent loan relief initiative allows employers to pay up to $5,250 towards your student loans each year through 2025 without it counting as taxable income. If you don’t know if your employer offers this benefit, it would be worth your while to ask about or advocate for it. Another potential benefit that will take effect in 2024 is the option to count your student loan payments as if they are a contribution to your 401(k) plan for the purposes of receiving an employer 401(k) match. These perks can significantly offset loan repayment costs.
Worth It!
Whether you are just starting your higher education journey and exploring financing options, starting to repay loans taken out within the past few years, or restarting the repayment process following the pause during the COVID pandemic, it can be a lot to navigate. However, a degree from Ottawa University that sets you on a satisfying, higher-paying career path is worth it. Contact us today to take the next step in your professional journey!