On June 30th, 2023, the Supreme Court overturned the Biden administration’s one-time student loan forgiveness program. The COVID-related student loan pause is set to end on August 31, 2023. Interest begins accruing on September 1, 2023, and payments will be due beginning October 2023.
To prepare, login to your Federal Student Aid account, update your contact info, lookout for mail or email from your student loan servicer, and start to set aside money now to cover this monthly expense. You should also look into all your options for repayment as a variety of payment plans and even potential forgiveness programs are available to relieve borrowers. Your monthly payment could range from $0 to a few hundred dollars per month or more, depending on a number of factors, such as your repayment plan, annual income, and the size and types of your loans. You can use the Federal Student Aid website’s Loan Simulator to find out your best repayment options relative to your personal situation and your primary repayment goal, and to get a sense of what your monthly payment might be. Note that the Simulator is only a simulation. Only your loan servicer can determine your exact monthly payment.
Fortunately, the Supreme Court did not rule against the Biden Administration’s reforms to income-driven repayment (IDR) plans, which are plans that make repayment more affordable by pegging your monthly loan payment to your income. A variety of these plans exist and borrowers should review all their options to figure out which best fits their financial situation. You will not be enrolled in any of these plans automatically. Applications to enroll in an IDR plan on the Federal Student Aid site are open now. You must also recertify your income annually to remain on an IDR plan.
Saving on a Valuable Education (SAVE) plan is a new and much more generous IDR plan replacing the REPAYE plan. If you are already enrolled in REPAYE, you will be automatically moved to SAVE. On this IDR plan, you would see your monthly payments on undergraduate loans cut in half beginning in July 2024. Furthermore, if your annual income is under 225% of the federal poverty line ($32,805 per year for a one-person household), this plan would reduce your monthly payment to $0. Note that while some benefits took effect this summer, other benefits do not go into effect until July 2024. These new benefits will take place automatically for anyone enrolled in the SAVE plan.
All of the IDR plans provide that after 20 or 25 years of repayment, any additional debt will be forgiven. Borrowers who enroll in an IDR plan may therefore want to rethink their repayment strategy: rather than aiming to pay off your debt, you may want to focus on making your monthly payment as low as possible and take advantage of debt forgiveness in the future.
The Biden Administration also started a “Fresh Start” program for student loan borrowers who are in default on their loans. Some benefits are available now, and others will be available after the payment pause ends. The Department of Education is reaching out to defaulted borrowers to inform them of the steps they should take, so you should make sure that your student loan servicer has your current contact information. To learn more, visit the Department of Education’s Fresh Start page.
If at any point you have difficulty affording your student loan payments, you should first consider an IDR plan, which could result in a $0 payment. If an IDR plan is not affordable, you should ask your loan servicer about a deferment of payments, or a forbearance, which is a temporary pause making loan payments. Be aware that time in deferment or forbearance might not count toward the federal government’s various debt cancellation plans and that you may continue to accrue interest while you are not making payments.
Finally, if you have multiple federal student loans, you might want to consider “consolidating” your loan soon. This is the process of taking out a new federal loan to repay and replace your existing federal loans, and is necessary for borrowers with older loans to access some of the government’s newer programs. You can learn more on the Federal Student Aid website’s Consolidate Loans page. Although historically borrowers risked losing certain benefits if they consolidated, for most borrowers they can keep their benefits and consolidate if they do so before December 31, 2023.
For a more comprehensive breakdown of your options for managing student loan payments, visit the National Consumer Law Center’s Student Loan Borrower Assistance website or the Student Borrower Protection Center’s Cancel My Student Debt website. The State of Illinois is also hosting a series of webinars about managing student loan payments – learn more at go.uillinois.edu/repaying a series of webinars about managing student loan payments – learn more at go.uillinois.edu/repay.