Payments and interest rates on federal student loans have been paused since March 2020. Sadly, that pause is about to end. That means that interest on loans will begin accruing on September 1. 2023, and student loan repayments will be due in October of 2023 for most borrowers.
The announcement was disappointing news for millions of Americans holding out hope for federal loan forgiveness. And it didn’t stop there. On June 30, 2023, the Supreme Court blocked President Biden’s student debt cancellation plan. They argued that the administration lacked authorization under the HEROES Act to forgive up to $20,000 in student debt per borrower.
So, while the outlook is grim for those hoping to wipe away student loan debt, not all the news is bad. Not long after the ruling, Biden announced a 12-month “on-ramp transition period” for borrowers unable to make their minimum monthly payments. “During this period, if you can pay your monthly bills, you should,” Biden said in a press conference. “But if you cannot, if you miss payments, this on-ramp temporarily removes the threat of default or having your credit harmed, which can hurt borrowers for years to come.”
The takeaway is if you are holding student loans—even if you plan to pursue the on-ramp opportunity—it’s wise to prepare for repayment today.
Why it Matters
You risk default if you hold federal student loans and don’t resume student loan repayments in October. This can damage your credit and hurt your ability to borrow in the future. Take action to set up payments before the first due date to avoid missing statements and billing dates.
What to Do to Prepare Yourself
- Update your contact information with your loan servicer. Before the end of August, go to StudentAid.gov and log in or register. Make sure you have an online account set up with each of your loan servicers.
- Build a budget. If you have never made student loan repayments (or haven’t paid in years), it may be a bit of a shock to your budget. Sit down and outline how much money you have coming in and going out each month. Look for areas where you can cut back. Determine what you can reasonably afford to pay on student loans when the time comes.
- Choose a debt-reduction strategy. Try to pay down or eliminate other debts in the weeks remaining before student loan payments resume. To ensure success, look for debt-reduction strategies that suit your particular needs. Some prefer to pay off balances with the highest interest rates first. Others prefer to pay off the lowest balances first. If you pay off the high-interest debts first, you will save more money in the long run. Paying off low-balance debts first can help you see progress and maintain momentum. Choose the strategy that best suits your financial habits and lifestyle.
- Optimize your debts for the lowest rates possible. Payments can add up quickly when juggling additional debts (like credit cards, a mortgage, or other loans). Talk to your credit card provider or loan holder about your circumstances. See if you can consolidate your debts or negotiate a lower interest rate. If you have a Maps loan and are concerned about making payments, talk to one of our lending experts. They may be able to help you refinance or revise your payment schedule.
- Don’t wait until the last minute. There will be roughly 44 million borrowers resuming payments this fall. This means there could be long waits for personal assistance. Act now to make the transition as smooth as possible—especially if you need a revised repayment plan or were in forbearance before the pause.
Finding Affordable Repayment Plans
The new Saving on Valuable Education (SAVE) Plan has replaced the existing Revised Pay As You Earn (REPAYE) Plan. If you were a borrower enrolled in the REPAYE plan, you’ll automatically get the benefits of the new SAVE Plan. You may, however, need to recertify. The SAVE Plan calculates your monthly payment based on your income and family size. It aims to provide the lowest monthly payment possible to all student borrowers. According to FSA, the changes to the new plan mean that “you will not owe loan payments if you are a single borrower earning $32,800 or less or a family of four earning $67,500 or less.” If you earn more than these amounts, you will still save at least $1,000 per year, compared to the old income-driven repayment plans.
For Loans Already in Default
If your student loans were in default before the March 2020 freeze, you may qualify for the Fresh Start Program. This can eliminate the negative impact of a student loan default and allow you to start making student loan repayments with a clean slate.
This program will last for one year after payments resume and provides borrowers with the following benefits:
- It restores access to income-driven repayment (IDR) plans
- It re-establishes eligibility for federal student aid programs like Pell Grants
- It protects borrowers from negative credit reporting and collections
- It gives borrowers the option of qualifying for student loan rehabilitation if they default later on
The Fresh Start Program is not automatic. If you think you may qualify, contact your loan holder and let them know you are interested in the program. Not all borrowers or loans will be eligible. So, speak to your loan holder, visit myeddebt.ed.gov, or call 800.621.3115 to learn more.
Watch out for Scams
State and federal officials also warn borrowers to watch out for scammers targeting those with student loans. If you need help paying your student loans, contact your loan servicer. They should be willing to work with you (for free) to sort something out. If you get an email, letter, text message, or phone call about loan assistance, ignore it or proceed with caution. Be on the lookout for red flags. Watch for aggressive language like, “Act immediately to qualify for student loan forgiveness before the program is discontinued”. Never give anyone your StudentAid.gov or bank login information.
The Bottom Line
If you have questions, we want to help. That’s why we’ve partnered with GreenPath Financial Services to help you prepare. Greenpath is offering a FREE webinar on Tuesday, August 15 at 5 pm to answer your student loan repayment questions. The webinar is open to any Maps members who want to attend. If you can’t make the webinar time, register anyway. GreenPath will send you a recording of the session that you can view at any time. GreenPath also offers free one-on-one counseling to help you manage your finances and reach your financial goals.
Remember, you don’t have to tackle this alone. If you are concerned about a loan you currently have with Maps or would like to apply for a loan to consolidate your other debts, talk to one of our lending experts by calling us at 503.588.0181 or by visiting your favorite branch.