Written By Meagan McGuire, ChFC®, CSLP®
President Biden extended student loan relief until August 29, 2023. This gives federal loan borrowers almost 2 years of paused payments at 0% interest.
In anticipation of payments resuming, here are a few frequently asked questions, based on what we know today so you can prepare.
When do student loan payments resume?
Student Aid’s guidance says that you’ll receive a billing statement or notice at least 21 days before your payment is due. Prepare for student loan payments to resume in August 2022. Auto-debt payments are said to resume automatically.
What will my payment be when payments start again?
For those on an income-driven repayment (IDR) plan, your payment will resume at what it was prior to your payments being suspended. What’s unclear, though, is when borrowers have to recertify their income to update their payments.
Previously, Student Aid advised that all recertifications between Mar. 13, 2020 and Dec. 31, 2020 would be postponed 12 months.
Now, its guidance simply states that your recertification date has been pushed out from your original recertification date, and that you’ll be notified of your new recertification date before the deadline.
With that said, you might have to recertify closer to payments resuming come October or wait until your postponed recertification anniversary date. Stay tuned here.
What do servicers use to recalculate loan payments?
If you’re on a standard, graduated or extended plan, your loan servicer will recalculate your payment. This calculation is based on the current balance (principal and interest) and the remaining repayment period on the loans when the suspension of payments ends.
Your payment could go up or down when the suspension period ends depending on whether you paid down any interest or principal during the suspension period and whether any interest capitalizes when the suspension period ends.
What if I can’t afford my payments?
If your household income has decreased significantly since before the pandemic, consider an IDR plan. You can also recalculate your payment based on your most recently filed IRS tax return on file or a recent pay stub. Your payment can be as low as $0 per month.
If you’re unsure what an IDR plan could look like for your situation, try our IDR calculator or schedule a consultation with us for a customized repayment plan of action.
If I apply for an IDR plan now, will my payments automatically be suspended?
Yes, your payments are automatically suspended if you apply for an IDR plan. The suspension is through August 29, 2023.
Will these months still count toward forgiveness under an IDR plan or for PSLF/TEPSLF?
YES. You’ll still receive credit toward forgiveness during this time.
- For IDR forgiveness: As long as you applied and were accepted for the income-driven repayment plan.
- For PSLF/TEPSLF: As long as you meet all other PSLF requirements which are working full-time for a qualifying employer, on an IDR plan, with Direct Loans.
Will my 2020 taxes affect my IDR payment?
Yes. Your future payment might be determined based on the adjusted gross income (AGI) from your 2020 tax return. Federal student loans are not like traditional debts, because tax filing status and marital status impact your payment when you’re on an IDR plan.
When you apply for an IDR plan, or recertify your income each year, your application confirms your AGI by pulling your most recently filed tax return via the IRS data retrieval tool.
When married, your spouse's income might affect your payment calculation, too.
Will interest capitalize on my loans when payments resume?
If you were up to date on your payments before the suspension of payments began, interest accrued prior to March 13, 2020, won’t capitalize.
If you were in deferment or a regular forbearance (not this administrative CARES Act forbearance) prior to Mar. 13, 2020, interest accrued prior to March 13, 2020 will capitalize. It begins to do so once your original deferment or forbearance ends or when the COVID emergency relief period ends, whichever is later.
If you were in your grace period before the suspension of payments began, any outstanding or unpaid interest on your account will capitalize when you enter repayment.
If you consolidate, any outstanding interest capitalizes which means any outstanding interest is added to your principal balance. Switching repayment plans is also a capitalization trigger.
Who should make payments now? How are payments applied?
Borrowers not pursuing forgiveness who plan to pay off their loans could make payments during the payment and interest freezes to help their dollars go a little further. Only consider this route after securing emergency savings and paying off other high-interest debt.
It’s important to note that there’s a hierarchy order of how payments will be applied to the balance. During the period of 0% interest, the full amount of your payments will be applied to the principal once all the interest that accrued prior to March 13 is paid.
You could also consider refinancing student loans when interest resumes if you can snag a lower rate.
Not sure what your game plan is prior to payments resuming? We can help.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
