How to Prepare for the End of Federal Student Loan Relief

After a break of over three years, the pause on federal student loan payments will end on August 30, 2023. It’s expected that borrowers will restart making federal student loan payments in October. Before that time, it might be wise to work on a strategy for repayment.

In March 2020, as the Covid-19 pandemic struck, the federal government ordered the suspension of payments, interest, and collections on most federally held student loans. Since then, the moratorium for more than 40 million borrowers was extended eight times. Now, however, there will be no more extensions because the debt ceiling bill signed into law by President Biden on June 3, 2023, stipulates that there can be no further pause on student loan payments unless it’s approved by Congress.

Meanwhile, the Supreme Court is expected to release a ruling about whether the Biden-Harris Administration’s student loan debt forgiveness program can move ahead. Under that program, federal student loan borrowers could receive up to $10,000 in debt relief if their individual annual incomes are less than $125,000 (or $250,000 for married couples), and up to 20,000 in debt forgiveness for borrowers who received a Pell Grant and meet those same annual income requirements.

The U.S. Department of Education argues it has the legal authority to implement debt cancellation under the Higher Education Relief Opportunities for Students Act of 2003, also known as the HEROES Act. But the debt program was placed on hold in fall 2022 after facing legal challenges in court. The case went in front of the Supreme Court in February 2023, and a decision by the Court is expected by the end of June 2023.

With the fate of the debt forgiveness program up in the air, and the resumption of repayment not far off, it makes sense to have a plan in place for making your student loan payments.

Loan Repayment Transition

The student loan repayment transition may not be easy for some borrowers. A survey ​conducted for Pew Charitable Trusts in 2021 found that 67% of borrowers said it would be difficult to afford their student loan payments if they resumed the next month. And a recent report from the Consumer Financial Protection Bureau found that approximately 5.9 million student loan borrowers currently have risk factors indicating that they could face financial challenges when student loan payments resume.

Here are some tips on how to prepare for the end of the student loan payment pause.

Update Your Contact Info and Prepare for Your Bills

Verify that your contact information is up to date in your profile on the website of your loan servicer and on your Federal Student Aid (FSA) account. Also, make sure your servicer hasn’t changed since the payment pause began. You can find your servicer when you log into your FSA account.

Once the pause is over, expect a billing statement from your loan servicer with information on your due date, interest, and payment amount. If you participate in autopay, double check that it’s set up with your latest bank info. Also, if you started autopay before the pandemic, you will likely need to opt back in or your payments won’t automatically resume.

If you have questions that can’t be answered online, you can call the Federal Student Aid Information Center at 800-4-FED-AID (800-433-3243).

Find the Best Plan for Your Income

Apart from the hardships caused by Covid-19, the federal government has made exceptions and provisions for borrowers in recent years. You may want to see if you qualify for any of the programs.

The Department of Education offers income-based repayment, which also considers family size. Almost all federal student loans are eligible for at least one of the four repayment plans:

•   Pay As You Earn (PAYE)

•   Revised Pay As You Earn (REPAYE)

•   Income-Based Repayment Plan

•   Income-Contingent Repayment Plan

For the first three plans, payments are generally 10% percent of your discretionary income. The plans stretch payments over 20 or 25 years and forgive any remaining balance. (Anyone enrolled in a plan and the Public Service Loan Forgiveness Program may qualify for forgiveness of any remaining balance after just 10 years of payments while working full time for a qualifying employer.)

If you’re already in an income-driven repayment plan but your income changed recently, you can update your information to see if you can get a new, lower payment amount.

The Biden-Harris Administration has proposed changes to the REPAYE plan that would reduce payments to 5% of an undergraduate borrower’s income, and reduce some borrowers’ payments to 0%. However, it’s not yet known when the modified REPAYE plan might go into effect.

Explore Other Federal Programs

Do you work for a nonprofit? Is your job in the public sector? Borrowers who are part of the Public Service Loan Forgiveness Program are to receive credit for suspended payments if they have a federal Direct Loan and work a minimum 30-hour week for a qualifying employer.

Teacher Loan Forgiveness is another federal program that can provide eligible educators with up to $17,500 in federal student loan forgiveness.

Restart Payments Early

Some borrowers in a position to resume their student loan payments have already done so, or they continued to make monthly payments even though it wasn’t required. This move allowed them to take advantage of 0% interest and likely pay down the principal on their student loans.

It’s not too late to take action. If you decide to resume payments before the payment pause ends, contact your loan servicer or go to its website to restart payments. It’s also a good idea to ensure that any payments made during the relief period are going toward the principal of the loan.

Consider Consolidating Loans

Student loan consolidation allows borrowers with more than one federal student loan to combine them into a single loan with a fixed interest rate that’s the average of the rates of the loans being consolidated (rounded up to the nearest one-eighth of a percentage point).

Borrowers may see a change in their monthly payments when they consolidate their loans into a Direct Consolidation Loan. One of the other biggest benefits is convenience. Instead of multiple loans to track each month and multiple payments to make, there is one payment a month, at a fixed interest rate.

The loan term also may be expanded to up to 30 years. However, a longer term generally means making more payments and paying more in interest than you would have otherwise. It’s important for borrowers to consider the length and interest paid over time, as well as the monthly payment, to assess whether consolidation makes sense for their financial goals.

Explore Student Loan Refinancing

Refinancing student loans means you get a new loan from a private lender — ideally, one with more favorable terms — that pays off your original loans. Refinancing may be right for you if you can lock in a lower interest rate.

However, be aware that refinancing federal student loans makes them ineligible for federal benefits like income-driven repayment, Public Service Loan Forgiveness and federal forbearance.

Also, it’s important to read the fine print and compare offers among lenders.

Exploring options, plugging your numbers into a refinance calculator, and weighing different scenarios based on your current financial picture and goals may be helpful in assessing whether refinancing is a good option for you.

Recommended: Student Loan Refinancing Guide

The Takeaway

The pause on federal student loan payments ends on August 30, 2023, and payments are expected to resume in October. Understanding the repayment options available and making a plan for repayment can help borrowers strategize the best way to manage their debt.

If the potential opportunity to get a lower interest rate is intriguing, you may want to explore student loan refinancing to see if it makes sense for your situation. SoFi offers loans with low fixed or variable rates, flexible terms, and no fees. Plus, SoFi members get free career coaching and financial advice.

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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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