Student Loans Repayment after the COVID-19 Payment Pause
On September 1, 2023, the U.S. Department of Education’s (DOE) period of administrative forbearance on federal student loans ended. This means that student loan interest has resumed after being fixed at 0% for more than three years, and payments will come due beginning in October 2023.
Under the Supreme Court’s ruling on case 22-506, Biden v. Nebraska, the DOE has been barred from carrying out the Biden-Harris Administration’s one-time student loan debt relief program. However, the Administration’s Saving on Valuable Education (SAVE) plan offers a promising alternative for overstretched federal student loan borrowers in a tight labor market. Under SAVE, those who took out federal loans to pay for college have an opportunity to cut their required monthly payments in half and save at least $1,000 per year. Better still, more federal student loan borrowers qualify for $0 monthly payment options under the SAVE plan than ever before.
This webpage offers guidance on how best to prepare for entering repayment and provides an overview of the Biden-Harris Administration’s SAVE plan.
“Fresh Start” for Federal Student Loans Defaulted before March 13, 2020
DOE announced the Fresh Start program in April 2022. The DOE will mark defaulted loans as current and remove any record of default from credit reports if borrowers take certain steps, including making a long-term payment arrangement. This program applies to Direct Loans, Defaulted FFEL loans, and Defaulted Perkins Loans held by the Department of Education.
Any eligible borrower may request a Fresh Start by:
Visiting myeddebt.ed.gov;
Contacting your student loan holder;
Writing to P.O. Box 5609, Greenville, TX 75043, with a letter including:
The name, date of birth, and social security number of the account holder; and
The phrase “I would like to use Fresh Start to bring my loans back into good standing;” or
Calling the Default Resolution Group at 1-800-621-3115.
If you do not know who holds your loans, you can call 1-800-621-3115 (TTY 1-877-825-9923). For more information, visit this page.
Preparing for Payments to Restart
You should update your contact information on the official Student Aid website as soon as possible to receive important updates. With this contact information, your loan servicer can send you a billing statement or other notice that includes your:
Payment due date;
Upcoming interest; and
Payment amount.
Payment will not be due any sooner than 21 calendar days after your loan servicer sends you this billing statement. If you have questions regarding your upcoming payment amount or wish to select a repayment plan, visit your servicer’s website or call or email them.
If you’ve never made a federal student loan payment before, your first step should be to review your student loan balance on your Dashboard to figure out what you owe. If you don’t know who your servicer is or how to contact them, visit the “My Aid” section of your Dashboard. If you can’t log in, call 1-800-433-3243.
Choosing the Best Repayment Plan for You
You should pick your federal student loan repayment plan based on your income. This Loan Simulator provided by the Office of Federal Student Aid can help you decide which plan is right for you by showing your monthly payments and long-term costs on various repayment plans. If you don’t select a plan, your loan servicer will place you on the Standard Repayment Plan (a 10-year fixed repayment plan).
Borrowers can enroll in auto pay (also known as auto-debit). Enrolling in auto pay will earn you a discount, lowering your interest rate by 0.25%, and is the best way to avoid missing payments. Before enrolling in auto pay, you should confirm that you can still pay your monthly payments by checking the billing statement your loan servicer sent you because estimates provided by the Loan Simulator might vary from the final figures. Additionally, you should regularly check that you have adequate funds in your account to make the payments.
The Standard Repayment Plan will usually result in higher monthly payments than Income-Driven Repayment plans. If you are unable to afford the Standard Repayment Plan as calculated by the Loan Simulator calculator, you should explore other payment plan options with your loan servicer as soon as possible. Know that you are not tied to a repayment plan and can apply for a new plan at any time.
Income-Driven Repayment (IDR) Plans
If you have not defaulted on your federal student loan and you want to explore a lower monthly minimum payment, you might consider enrolling in an Income-Driven repayment plan. For more information about those options and how to apply, you can click here, here, and here.
These plans all result in loan forgiveness if you still have a loan balance after the term of the repayment plan, and these plans usually provide the lowest monthly minimum payment obligation. However, the amount forgiven under such a plan will count as taxable income to the borrower, unlike under the Public Service Loan Forgiveness program.
If you choose an IDR plan, you will need to recertify your income and family size with the government every year, though the requirement for recertifications was waived during the period of the administrative forbearance. You can find your date for recertification in your account on the Student Aid website.
Saving on Valuable Education (SAVE): The Biden-Harris Administration’s New Income-Driven Repayment Plan
Like other Income-Driven repayment (IDR) plans, the SAVE plan (formerly the REPAYE plan) sets your monthly student loan payments based on your family size and discretionary income (the income you have left over after paying for housing, food, and other essentials).
The SAVE plan differs from previous IDR plans in that it calculates discretionary income based on the difference between your Adjusted Gross Income and 225% of the federal poverty guideline, whereas other plans subtract just 150% or 100% of the poverty guideline. Visit the Department of Health and Human Services webpage for a more detailed categorization of income brackets.
On the SAVE plan, federal student loan borrowers pay 5% of their discretionary income every month toward undergraduate student loans (this 5% figure is half the amount federal student loan borrowers had to pay under the previous REPAYE plan).
If you owe undergraduate student loans and were enrolled in REPAYE, you have been rolled into the new SAVE Plan before payments restarted, and your monthly payments will automatically be adjusted to SAVE plan levels. However, if you are on an alternative plan and want to switch to SAVE, you’ll need to apply.
If you owe graduate student loans, your payment will be 10% of your discretionary income under the SAVE plan. Federal student loan borrowers owing a mix of undergrad and graduate federal loans will pay a weighted average based on the original principal balances of their loans.
For both undergrad and graduate federal loans, if your original principal balance was $12,000 or less, you could get any remaining federal student loan debts forgiven after 120 months (10 years) under the SAVE plan. For every additional $1,000 borrowed, the timeframe increases by one year, but there is a maximum of 20 or 25 years.
Lastly, the SAVE plan offers the most generous interest subsidy of any IDR plan. If your assessed monthly payment fails to cover interest charges on your federal student loan, the government will chip in to cover them for both subsidized and unsubsidized loans.
Beware of Scams
You do not have to pay anything to benefit from the Department of Education’s Federal Student Aid programs. Anyone who contacts you asking you to pay a fee to restart your federal student loan payments or to cancel your student loans is scamming you. You should report these scams to the Federal Trade Commission here.
Your loan servicer may offer you a rehabilitation agreement during this period if your loans are in default, which would require some payments to complete. You can verify that your loan servicer is contacting you by calling your servicer back using the Department of Education’s contact information on their website. For more information about federal student loan protections, you can visit the Consumer Financial Protection Bureau website.