Over the past three and a half years, the Biden and Trump administrations extended the student loan payment pause multiple times, freeing federal student loan borrowers from payments and interest accrual. But if you have federal student loans, interest began accruing in September, and your payments will resume in October.
And you have plenty of reasons to be stressed after a multiyear payment reprieve. Aside from the pandemic throwing everyone’s life into a spin, your student loan servicer and monthly payment might have changed. Where do you even find the information you need to make a financial plan?
But we’re here to help ease the stress and let you take a deep breath—regarding your federal student loans, at least. We’ll walk you through where to find all your loan and servicer information, the details about the “on-ramp” period for the payment restart, and resources for making your student loan payment more affordable—thanks to the launch of a brand-new payment plan.
Figure out the details
Before your first payment is due, you should receive a bill from your student loan servicer at least 21 days beforehand. Your servicer will tell you your payment amount and when it’s due.
According to Betsy Mayotte, president and founder of the Institute of Student Loan Advisors, a nonprofit assistance group for student borrowers, it's essential to identify your student loan servicer—companies or organizations that manage federal student loans on behalf of the Department of Education.
If you don’t know who your servicer is, you can figure it out by logging into your account at StudentAid.gov. Once you're logged in, your servicer will be clearly noted for each loan. You can also find your monthly payment and total balance information for all of your federal loans.
If your loan servicer changed, you should have received communication—via email or letter—from your previous and new servicers, including instructions for creating a new online account, managing payments, and more. If you didn’t, you can use the information in your StudentAid.gov online account to track down your servicer and give them a call.
And here’s a not-so-bonus tip: Make sure your contact information is up to date. If your contact information has changed in the past few years (address, phone, email address), you’ll want to update it on your StudentAid.gov and loan servicer’s account as soon as possible. Missing important communications from your servicer isn’t anyone’s idea of a good time.
Create a repayment plan
If adding your student loan payment back into your monthly budget makes you tense up, there’s a simple two-step process to de-stress. “Find out what your payment is, and then look at where your money is going,” says Tricia Kollath, a certified financial planner at Inspired Financial Planners.
Money can be tight for several reasons, not just the return of a student loan payment. If this is you, you have options. First, you can cut out all the fun stuff that makes life worth living and put all your money toward your student loans. Next, you can ignore that option because there are better options.
Play with your budget
If you need to carve out some cash to make your student loan payments comfortable, your budget can help. You could use a budgeting plan like the 50/30/30 method to divvy up your cash between essentials and discretionary spending. For some extra breathing room, consider a side hustle to amp up your cash flow. Some of those options even put cash in your pocket daily. You could also use a budgeting app to keep on top of your monthly income and out-go, or a savings challenge to keep both your loan payments and savings on track.
Enroll in auto-pay
While it might not look like a budgeting strategy, enrolling in your loan servicer’s auto-pay program is definitely a way to save. By doing so, you could score serious savings—up to a 0.25% interest rate discount on your loan.
For instance, say you have a $50,000 student loan balance at 5.50% APR on a 10-year repayment plan. You’d pay over $15,000 in interest alone over the 10-year term at that interest rate. But with a 0.25% rate discount, you’ll save almost $750. That savings could help you make an extra payment, stash money away for a house down payment, or just keep a few extra bits of fun in your budget each month.
Change your repayment plan
When your federal student loans go into repayment, you’re generally placed into the standard 10-year repayment plan. However, that’s not the only option. If your current monthly payment has you stressed, you could be eligible for an income-driven repayment plan that caps your payments as a percentage of your discretionary income.
We’re mentioning this option here, but more details are below to help you explore whether changing payment plans is right for you.
Income-driven repayment plans: a deeper look
There are four income-driven federal student loan repayment plans (IDR plans)—three existing plans and one new plan that replaces a previous one.
- Income-based repayment (IBR) plan: To qualify for the IBR plan, you must have a monthly payment that’s less than what you would pay with the 10-year standard repayment plan. Monthly payments are generally capped at 10%–15% of your discretionary income, and the repayment period is 20 to 25 years.
- Income-contingent repayment (ICR) plan: Borrowers with direct loans are eligible for the ICR plan. With this plan, you pay the lesser of 20% of your discretionary income or what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income. The repayment period is 25 years.
- Pay as you earn (PAYE) plan: If your monthly payment is less than what you would pay with the 10-year standard repayment plan, you’re eligible for PAYE. Your monthly payments equal 10% of your discretionary income; the repayment period is 20 years.
While these plans can lower your monthly payments, asking for help choosing a plan is wise. “Borrowers can always speak with their student loan servicer about payment options,” says Rachel Rotunda, director of government relations at the National Association of Student Financial Aid Administrators, a nonprofit organization.
If you want a preview of your payment under any of the IDR plans, Rotunda suggests using the loan simulator on StudentAid.gov; this simulator offers a preview of your monthly payment for each possible IDR plan.
And as we mentioned, a new IDR plan is coming online. Let’s get into that.
Inside the Saving on a Valuable Education (SAVE) repayment plan
In August, the Biden administration introduced the Saving on a Valuable Education (SAVE) plan, an IDR plan that replaced the REPAYE plan. You will automatically be transferred to SAVE if you were previously enrolled in REPAYE. If you weren’t, you'll need to apply.
So, what’s the hype about SAVE versus REPAYE? Potentially lower payments and more interest subsidies from the government, both of which could translate to lower payments.
“Under SAVE, if your calculated monthly payment is less than how much interest is accruing on your loan per month, then the government is going to forgive the difference,” says Mayotte. “If you're accruing $100 a month in interest, and your calculated payment is $50, then the government will forgive the other $50. To be clear, interest is still accruing [on your balance] unless you have a $0 payment under SAVE.”
Borrowers with undergraduate loans currently on the SAVE plan pay no more than 10% of their income towards monthly payments. However, there’s more relief on the horizon: Starting July 2024, payments will be capped at 5%, so your monthly payment will drop.
By opting into an IDR plan, you’ll have any remaining balance on your loan forgiven when the repayment period is up. It’s nothing to sneeze at, but remember that forgiven amounts may be subject to taxes. The repayment period for SAVE is 20 years for undergraduate loans and 25 years for graduate loans.
What’s the on-ramp period?
With payments starting back up after such a significant hiatus, there’s a special provision called the on-ramp period designed to help protect your credit. During this time (Oct. 1, 2023, to Sept. 30, 2024), servicers won’t consider missed payments delinquent. Instead, they’ll automatically apply a forbearance to your loan. That means interest will continue to accrue, but you’ll have until September 2024 to catch up on payments. Servicers will also not report late payments to credit agencies (which keeps your credit score safe) or send eligible loans to collections.
And while that’s a nice grace period, keep in mind that missed payments won’t count toward loan forgiveness under IDR plans or Public Service Loan Forgiveness. So it’s best to keep your payments on time to speed your way to forgiveness—if that’s your ultimate goal.
The takeaway
Now, you have a set of tools and resources to help ease your federal student loans from pause to the repayment phase. The number one thing to remember is that there’s help to answer your questions, potentially lower your payments, and put you on a path toward eventual loan forgiveness.
And if you need help from your servicer, Rotunda recommends reaching out as soon as possible.
“This is really something that has never happened before, where we have tens of millions of borrowers re-entering their repayments around the same time,” says Rotunda. “That significant influx of borrowers is going to add a lot of strain to the servicers as a result where it's likely that borrowers will experience extended wait times if they're trying to reach out via phone.”
