June 15, 2024

Email notifications are now being sent to individuals with federal student loans. These are the first step by the U.S. Department of Education in preparing borrowers for their repayments to recommence in October.

Since the COVID-19 pandemic began, federal student loan payments had been put on hold. Borrowers who received loans under the direct loan program, utilised for all federal student loans since 2010, will need to strategise on how to manage payments of several hundred dollars each month.

It’s crucial to research your options now and to avoid delaying the inevitable. You can study various federal income-driven repayment plans, such as the new SAVE initiative, which aims to help you lower your monthly payments.

Previously, borrowers had the expectation of becoming eligible for a one-time forgiveness program proposed by the President, Joe Biden. This would have allowed borrowers to have some of their federal loans cancelled. However, this was invalidated by the U.S Supreme Court on June 30th.

Borrowers can consider the newly introduced federal SAVE program if they are currently earning a low income. This program is intended to help reduce monthly payments to a more achievable amount.

What Steps Should Borrowers Take?

It’s critical to update your contact details with your loan servicer and on StudentAid.gov. Initially, you should review any emails sent over by the Department of Education since late July.

Ensure to keep an eye out for payments due starting in September and curious borrowers can visit the Federal Student Aid website for their current loan balance.

Getting enrolled in autopay for student loan payments is also strongly recommended. This allows monthly payments to be directly drawn from your checking account each month, and can even land you a small percentage off your interest rate.

If Monthly Payments Aren’t Manageable?

Borrowers struggling with their monthly payments can look to the new Saving on a Valuable Education (SAVE) program for help. Starting its official run in August, the SAVE program aims to aid borrowers in reducing their monthly payments.

The SAVE plan replaces the former Revised Pay As You Earn (REPAYE) plan. Eligible borrowers would thus automatically be placed on the SAVE Plan.

Frequently Asked Questions

How to prepare for the recommencement of loan repayments?

Ensure your contact information is up-to-date with your loan servicer and StudentAid.gov. You should also look over any emails sent by the Department of Education.

How does the SAVE plan work?

The Saving on a Valuable Education (SAVE) program aims to assist borrowers in reducing their monthly payments, limit how much interest will accumulate, and lower total repayment amounts.

What happens if I was previously signed up for autopay?

You’d likely need to re-enroll again after the payment pause. You can do this through your servicer’s website. Ensure you have enough funds to cover the bill by the due date.The U.S. Department of Education’s Student Aid Verification, Evaluation, Simplification and Enforcement (SAVE) plan introduced new parameters for repayment of student loans. For families of four bringing in less than $67,500 per year (threshold differs for Alaska and Hawaii), monthly repayments would become $0, while those earning more will see substantial savings compared to previous income-driven repayment plans.

Monthly payments under the SAVE plan will be roughly halved compared to previous plans, with repayments equalling only 5% of discretionary income, down from 10%. It’s crucial to make payments as the Education Department specifies; if done correctly borrowers could end up having remaining debt dismissed after a decade.

In essence, the more you originally borrowed, the longer the repayment period before debt dismissal. Your monthly payments will be calculated based on your discretionary income, which is the difference between your adjusted gross income and 225% of the U.S. Department of Health and Human Services Poverty Guideline for your family size.

The U.S. Department of Education is currently accepting applications ahead of the SAVE plan’s official launch. Visit Studentaid.gov/idr for application and other additional information. Their “Loan Simulator” tool can assist in picking the appropriate income-driven repayment.

Income-driven repayment plans are particularly beneficial for those on lower incomes. Apply sooner rather than later if you would prefer a lower monthly payment before the first bill arrives.

Keep in mind that private student loans typically don’t offer income-driven plans, but may provide alternate repayment plans on a case-by-case basis.

With student loan payments due to resume in October, now is the time to evaluate your financial situation if it has dramatically altered since 2020. Anyone dealing with student loan debt could also face concurrent credit card debt, personal loans and car payments.

GreenPath Financial Wellness, a nationwide nonprofit financial counseling and education service, has seen a significant increase in calls for advice as the payment resumption date gets closer. Their guidance covers debt-related topics such as picking the best income-driven repayment plan.

The vast majority of student loan borrowers that have taken advantage of the payment pause revealed they don’t know how they will restart making payments come fall.

This is a critical time for student loan borrowers. Be sure to reach out and obtain counsel if you’re unsure what steps to take next.

## Frequently Asked Questions

### What is the SAVE plan?

The Student Aid Verification, Evaluation, Simplification and Enforcement (SAVE) plan is a new set of rules introduced by the U.S. Department of Education. The plan is designed to reduce the financial burden of student loans for low-income families, with monthly payments reduced to $0 for families earning less than $67,500 per year.

### How the SAVE plan’s monthly payment calculated?

The monthly payment is calculated based on a borrower’s discretionary income, which is the difference between the borrower’s adjusted gross income and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for their family size.

### How can I apply for an income-driven repayment plan?

You can apply for an income-driven repayment plan through the U.S. Department of Education’s website (Studentaid.gov/idr). The Department is currently accepting applications ahead of the SAVE plan’s official launch, so apply sooner rather than later to receive a lower monthly payment before your first bill arrives.
The Federal Reserve Bank of New York’s Center for Microeconomic Data revealed a remarkable $1.57 trillion worth of student debt in 2021’s second quarter. Surpassing credit card debt, which totaled $1.03 billion, student loan debts remain second to mortgages, which stand at rather hefty $12.01 trillion, and auto loans are just slightly ahead at $1.58 trillion.

The good news is that the percentage of student loans that were overdue by 90 days or more or declared in default during the same period was less than 1%, signaling a marginal decrease from the previous quarter. Historic lows were observed in reported delinquencies. The breather in payments coupled with forbearance on reporting defaulted payments to credit bureaus helped student borrowers.

Regardless, credit card balances saw rapid growth and raised concerns about future repayment capabilities. According to the Consumer Financial Protection Bureau, approximately 20% of student borrowers have risk factors indicating potential struggles when normal payment procedures resume.

##Who are exempt from starting student loan repayments?

Loans incurred by students actively pursuing their education will not need to commence upon repayment as of October. Graduates from May or June have a grace period until November or December before they need to start making payments.

Last year’s proposed federal student loan forgiveness package would not have benefited everyone in particular, those who earned an annual income higher than $125,000 (for individuals) or $250,000 (for couples). It is therefore prudent for some borrowers to ensure they are eligible for any form of targeted loan forgiveness before starting repayments.

##How to evade student loan scams?

Beware of student loan forgiveness scams that are rife and likely to increase as the October repayment deadline approaches. Generically, the scams kick off with someone purporting to offer student loan consolidation, payment reduction programs, or the likes. The trick: obtaining personal information such as your SocialSecurity number, name, address, and even your StudentAid.gov log-in credentials.

Just to clarify, neither the Department of Education nor your student loan provider will ever ask for your FSA ID or password.

## Frequently Asked Questions

### What is the current standing of Student Loan Debt?

At the end of the second quarter in 2021, student loan debt reached $1.57 trillion.

### Who is exempt from paying their Student Loans?

Students who are currently in school and those who graduated in May or June 2021 do not have to start repayments until November or December 2021.

### How can student loan holders differentiate between legitimate services and scams?

Always be wary of promises that sound too good to be true, especially those that demand upfront payments or personal sensitive data.