How to Pay Back Your Student Loans

Student loan payments resume again starting October 2023. Find out what has changed and understand your options for payment plans.

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If you haven’t prepared to re-start paying your student loans, get your checkbook out because payments are due starting in October.

Borrowers who aren’t certain about the details of resuming payment – what the monthly payment will be and where to send it – should call their loan service provider.

The pause in payments, which began in March 2020, has been a turbulent time for borrowers. The promise of $10,000 (and for some, $20,000) in loan forgiveness never happened. One new program, Saving on a Valuable Education (SAVE), was introduced and will help reduce payments for some borrowers.

Otherwise, it’s back to business as usual, for the 43.6 million borrowers who owe a collective $1.77 trillion for money they borrowed to go to school. Interest on loans, which has been 0% the last three-plus years, started accumulating again on Sept. 1 and will be reflected on the balance owed.

With that in mind, we’ll go over ways you can prepare to pay back student loans so that you can approach October with a lot more readiness and a lot less anxiety.

Student Loan Payments During COVID-19

Student loan payments were paused in March of 2020 as a response to the economic fallout from the COVID-19pandemic. The Department of Education extended the hold five times.

President Joe Biden had hoped to forgive $10,000 in loans ($20,000 for those with Pell Grants), but the Supreme Court ruled that the HEROES Act (Higher Education Relief Opportunities for Students) did not authorize the Biden Administration to move forward. This decision also held that any borrower who requested a refund on mid-moratorium payments would be liable for those, too.

Between the Biden Administration’s forgiveness plan announcement and the Court’s ruling, some borrowers asked their lenders for refunds on any payments they made mid-moratorium, anticipating that their debt would be forgiven. If this is you, know that you’ll have to pay this back, or your balance will increase when your payments resume.

Be wary of scams or overpaying for financial assistance, too. The Department of Education’s Federal Student Aid office cautions borrowers against using companies that make hollow guarantees, ask for your credit card or bank information in exchange for their financial aid, or insist you take advantage of their opportunity when you can get the same information elsewhere, free of charge.

Preparing for Student Loans Payments

Under normal circumstances, new graduates have six months before they have to begin making debt payments. That is still in effect for 2023 graduates who have student loans.

However, for those whose loans were paused during the pandemic, the next payment is due in October. If you haven’t started preparing, start now.

There are several types of student loan repayment plans. Some are based on discretionary income, which is the difference between the borrower’s annual income and a percentage of the poverty guideline based on family size and state of residence. These loan programs, commonly referred to as income-based repayment – usually run 20-25 years and may include loan forgiveness.

Other repayment plans start with low payments that increase as your income increases.

Regardless of which plan you choose, make sure you know who your loan-holder is, where to send your payments, and how much you have to pay.

If you have questions about discharging loans or consequences for missing payments, get answers to those concerns as soon as possible to avoid falling behind. Your loan servicer and the Federal Student Aid office’s website are good starting points for assistance.

Some of the best way to prepare and make student loan payments include:

  • Prioritizing paying off your loans.
  • Using your grace period, if applicable, to research repayment options.
  • Creating a budget around your student loans.
  • Calculating how much you owe and keeping this total in mind while budgeting.
  • Reaching out to your loan servicer. This is the individual assigned to handle your loan by the Federal Student Aid office, whose website can determine who your servicer is.
  • Setting up automatic payments to avoid late fees.
  • Avoiding student loan default at all costs.
  • Determining when you expect to pay off the loan and planning accordingly.
  • Remembering that your payments re-start in October ‘23.

When Do Student Loan Payments Start?

Those whose loans were paused during the pandemic will start payments again in October. You will be billed at least 21 days before your first due date with your payment amount, but you should still prepare now to ensure timely payments.

For recent or soon-to-be graduates, you typically have a grace period that lasts six months. This grace period still applies if you drop out or slip below half-time status. Its purpose is to give you time to find a job, select a repayment plan, and begin earning income before taking on your bills.

There are benefits to beginning your repayments before your grace period expires. Unsubsidized loans accrue interest while you’re in school and during your grace period. You can also consolidate your student loans during your grace period. This simplifies the repayment process by grouping your student loans into one payment, which goes to one lender.

Don’t be too hasty, though. Borrowers who consolidate early surrender their grace period, and repayment will begin when the Direct Consolidation Loan is processed. You can ask to delay the processing until you are closer to the end of your grace period.

Private lenders offer lower interest rates to those with high credit scores. If you have good credit and are looking to lower your interest rates on medical school loans, for example, working with a private lender may be a good option.

Repayment Plans: How Much Do I Pay Each Month?

Average student loan payments range between $200 to $300 per month, according to the Federal Reserve. However, what you owe depends on many factors, including the loan(s) you accepted. These factors matter when determining the best repayment option.

Your minimum monthly payment is based on your loan type, the amount you owe, the duration of your repayment plan, and your interest rate. Depending on what repayment program you choose, borrowers have 10-25 years to fully repay federal loans. Shorter repayment times or larger loans will result in higher monthly payments.

The Standard Repayment Plan is the most popular, but don’t assume that it’s the best plan for you. This is simply the default plan, meaning borrowers are automatically enrolled unless they select a different one.

Under this plan, you’ll make fixed monthly payments for 10 years. It’s a great plan if you can afford the monthly payments, which are at least $50. It’s also the cheapest long-term option because you’ll pay a lot less interest. If you lack the income to support these payments, however, you should enroll in one of the income-based repayment plans.

For some, the Public Service Loan Forgiveness program might be a worthwhile option. To qualify, you must be a direct, full-time employee of the federal, state, or local government at any level, or of a not-for-profit organization that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code. Some non-exempt not-for-profit organizations qualify if a majority of their full-time employees are dedicated to specific public services.

Can I Pay More than the Minimum to Get Ahead?

You can always pay more than the minimum payment each month. There are no penalties for early repayment.

While paying more than the minimum will reduce the lifespan of your loan, be sure it’s something you can consistently afford. Prioritizing student loan repayment is crucial; but so are emergency or retirement funds.

Ultimately, paying more than the minimum is encouraged. It’s almost always beneficial, especially if you’ve accounted for other monetary commitments.

How Do I Make Payments?

You’ll be responsible for sending your monthly payments to the companies that hold your loans when they come due in October.

If you don’t know where to send a payment, call your school’s financial aid office or the Federal Student Aid office. They can direct you to your loan servicers, and you can contact them directly with questions.

You also can retrieve loan information via the National Student Loan Data System. Now more than ever, it’s vital to know your balance details.

Be aware that your payments are due even if you don’t receive the bills. If you moved after graduation or relocated amidst the moratoriums, contact your loan servicer with your new address to ensure you receive bills.

Also, consider changing your loan due date to make budgeting easier. Your monthly payment might be due before you receive a paycheck. Communicate with your loan servicer to see if your payment date can be switched.

What Are the Consequences of Missed Payments? Defaulting?

If you make a late payment on a federal student loan, it will likely be considered delinquent. If the due date is encroaching and you’re concerned you won’t make the payment on time, contact your loan service provider as soon as possible. With consistent delinquency status, your loan may default.

Student loans never disappear. There’s no statute of limitations, and student loans are rarely discharged, even in bankruptcy. With few exceptions, your student loans will follow you until you pay them off.

Defaulting on federal student loans has severe penalties. Delinquency status begins the day after your first missed payment. If, after 90 days, you fail to repay the amount or fail to take other actions indicating your intent to pay, your delinquency gets reported to major credit bureaus. If this continues, you risk defaulting, which has serious consequences.

The government can garnish (withhold) up to 15% of your wages and Social Security benefits. Your credit score will take a serious hit, which has a ripple effect on your ability to make big purchases, such as a home, car, or good credit card. You also risk being taken to court by your loan holder, resulting in court and attorney’s fees in addition to collection fees.

Late or missed payments show up on your credit report and harm your score. If you cannot afford your payments, it is crucial to contact your loan servicer and review your options. It’s never a good idea to simply remain silent and not pay.

Can I Cancel My Student Loans or Have Them Forgiven?

The Biden Administration sped up efforts to forgive loans paid on the Student Loan Forgiveness Program and other, income-based repayment plans where borrowers had gotten caught in the bureaucracy. More than 800,000 borrowers already have been notified that their loans have been forgiven. That forgiveness comes when borrowers pay on an undergraduate loan for 20 years, or 25 years on a graduate loan.

In addition, federal student loans may be canceled if your school closed while you were attending, closed within 90 days of your withdrawal, or failed to provide a refund that it owed you or your lender after you withdrew. Other circumstances allowing loan cancellations involve the loan resulting from identify theft, or if the student borrower dies or becomes totally and permanently disabled.

Federal student loans may be eligible for certain Student Loan Forgiveness Programs.

If you have an Income-Based Repayment plan, any balance remaining after 10 years will be forgiven if you spend those years in a public service sector, work in government at any level, or work for nonprofit, 501(c)(3) organizations. Under the Teacher Loan Forgiveness Program, you can have up to $17,500 forgiven if you teach in a low-income area for five years,

Some employers offer student loan assistance as a benefit. The two common programs are direct repayment or discretionary programs. The former involves the employer either making a cash payment directly toward the employee’s student loan or matching the employee’s contributions (to an extent), while the latter offers discretionary benefit dollars to employees who put them toward his or her student loans.

How to Reduce the Cost of My Student Loans: Biden’s SAVE Plan

President Joe Biden announced the Saving on A Valuable Education (SAVE) plan in the summer of 2023. The administration created a repayment option based on income that cuts some payments in half and reduces others to zero. Those in the SAVE plan would see a payment generally equal to 10% of annual discretionary income divided by 12.

Nobody making less than about $15 per hour would be required to make a payment. Borrowers making more could save up to $1,000 annually with the plan, according to the DOE. The administration states the SAVE plan offers the lowest monthly payments of any income-based plan.

In the plan’s first two months, more than four million borrowers enrolled, and another one million applications were filed. To see if you could save money with SAVE, check the application site. Borrowers can see their new payment before the application is submitted.

How to Reduce the Cost of My Student Loans: Other Plans

If your monthly required payment is more than your income allows, you may be eligible for one of the following income-based repayment plans:

These plans are based on your income rather than what you owe. They account for your income, family size, and where you live. Depending on the program, the plans run from 20-25 years, and you’ll pay between 10% and 20% of your discretionary income.

If you expect your financial difficulty to be short-term, you can temporarily suspend payments on federal student loans. With private lenders, you won’t know unless you ask. Under normal circumstances, however, your interest will continue to accrue, meaning you will owe more when you resume payments.

You may be able to extend the time you have to repay federal loans by using an extended repayment plan. Or, if you expect your earnings to increase significantly, you can opt for a graduated repayment plan, which allows you to increase your monthly payments over time.

For borrowers with multiple, high-interest loans, two other options exist.

If you took out private loans, secured a good credit score, and now qualify for lower interest rates, you can refinance your student loans. This involves repaying some or all of your student loans by taking out one new, private loan, preferably one with a lower interest rate than your current loans.

Federal student loans have benefits and protections that you could lose if you refinance them, so if you took those out but still want to reduce the chaos of multiple lenders, consider student loan consolidation. This simplifies the process by merging the lenders who comprise a federal loan and paying them off with a single loan.

If you ever find yourself struggling with student loans, remember that you always have options. Don’t wait until you’ve missed payments.

The last thing you should bear in mind: you can handle this. Stay ahead, communicate with your loan servicer, and create a plan that works for you and your budget. Once you have the necessary tools and information, student loan repayment won’t feel so overwhelming.

About The Author

Max Fay

Max Fay has been writing about personal finance for for the past five years. His expertise is in student loans, credit cards and mortgages. Max inherited a genetic predisposition to being tight with his money and free with financial advice. He was published in every major newspaper in Florida while working his way through Florida State University. He can be reached at [email protected].


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