After more than three years and eight extensions, the pause on federal student loan payments is coming to an end.
A deal to suspend the debt ceiling, which cleared Congress and now awaits President Biden’s signature, codifies into law the administration’s earlier announcement that payments would resume by Sept. 1. The legislation ends any hope of another extension.
The moratorium was first instituted in March 2020 by the Trump administration because of the economic upheaval caused by the coronavirus pandemic, and it was last extended in November amid questions over the legality of Biden’s student loan forgiveness plan. People with student loans held by the Education Department have had their payments suspended without penalty or accrual of interest. Borrowers in default on their loans have also been spared collection. All of that is about to change.
Economists and higher education experts worry that many borrowers are ill-prepared for the resumption of student loan payments and could fall behind. Before the pandemic, the Federal Reserve pegged the typical monthly payments between $200 and $299 - a bill that some households may struggle to absorb.
Here are some steps borrowers can take to ease the transition.
Check the details of your account
If it’s been a while since you’ve looked at your student loans, now is a good time to log in to the Federal Student Aid website to verify that the amount owed and interest are accurate.
Your FSA account will also note which company is servicing your loans on behalf of the Education Department. Loan servicers can help you with repayment options, billing, consolidation and other services related to your debt.
During the payment pause, several servicers, including Navient and Pennsylvania Higher Education Assistance, bowed out of their federal contracts and transferred accounts to other companies. That means the servicer you had at the beginning of the pandemic may not be the same one handling your loans now. You can also identify who your servicer is by contacting the Federal Student Aid Information Center at (800) 433-3243.
Once you know who is servicing your loans, log in to your account and make sure your contact information is up to date.
Keep an eye out for notices
Your loan servicer may text or send out notices by email or mail with information about the resumption of payments. Some will also robocall with reminders. The department typically communicates through email, so be wary of phone calls from anyone claiming to be from the federal agency and asking for your personal information.
Figure out which repayment plan is best for you
If your finances have changed in the last three years, your current repayment plan may not be the best fit. Or if you’re a recent grad who has never made a payment, take a look at what options are available. While the standard 10-year repayment plan - the default for newly minted grads - may be best, there are a wealth of options.
The Education Department’s Federal Student Aid office has a loan simulator tool that lets you see how you can lower your payments or pay off your debt faster. Your loan servicer can also provide information. In fact, now may be the best time to contact your servicer to avoid long wait times.
After Congress refused last year to give the student aid office more money, the department reduced the amount of money it pays servicers and the number of call center hours servicers must provide. That will probably result in longer wait times once the payment moratorium ends.
Check your eligibility for debt forgiveness programs
The Education Department offers several programs that can significantly reduce the amount of money you repay on your loans. Chief among them is Public Service Loan Forgiveness for borrowers employed by the government or certain nonprofit organizations. After 10 years of service and qualifying payment, participants can have the remaining balance on their loans forgiven.
There is also a suite of income-driven repayment plans that offer loan forgiveness after 20 or 25 years of payments. And the department is set to roll out a more generous plan with a shorter time to forgiveness next year. You can learn more about the federal forgiveness plans from your loan servicer or on the Federal Student Aid website.
Ask for help
If you were in default on your federal student loans before the payment pause, you can return your loans to good standing through a temporary initiative known as Fresh Start.
Anyone now in default on a federal loan made directly by the Education Department, Perkins loans held by the agency and old bank-based debt held by the department or private companies, is eligible for the program. You must contact the department’s Default Resolution Group or your loan holder to take advantage of the program.
Not in default but still struggling financially? Contact your servicer to learn more about your options, whether that means postponing payments or enrolling in a repayment plan that ties your bill to your income. Take a look at studentaid.gov to learn more about the impacts of suspending payments and how to avoid default.