Since March 2020, federal student loan borrowers have not had to make a single payment or had interest charged against their outstanding balance. However, three years and nine extensions later, it has officially been signed into law that borrowers will officially have to begin making payments again starting 60 days after June 30, 2023 (at the end of August).
If you’ve got a student loan and have been enjoying this grace period, then chances are you’ve been putting that portion of your budget toward other priorities. Simultilately, you may also be hoping that the $20,000 in student loan forgiveness that Biden promised will finally come through. Here’s the latest on all of these topics and some tips for getting ready to begin making your payments again.
Why Are Student Loan Payments Going to Resume?
In the days leading up to the May debt ceiling showdown in Washington, President Biden and Republican leaders had to make a number of concessions with one another to get the other side to agree to raise the debt ceiling. While this helped to avoid a national catastrophe, there was some collateral damage for federal student loan borrowers.
One of the provisions that made it into the final bill was that there would be no further payment pause extensions. Since it was passed by Congress on June 2 and signed by President Biden, this is now official.
Was There Going to Be Another Extension?
Originally, the June 30th date was tied with Biden’s massive student loan forgiveness program which is currently in the hands of the Supreme Court. As a precautionary, the Department of Education had declared with the last extension that forbearance would end on June 30th or 60 days after the Supreme Court had reached a decision — whichever was sooner.
This was done strategically so that if the Supreme Court rejects the program, then the door would be open to continue the payment freeze. However, thanks to the debt ceiling bill, the two topics are now no longer tied to one another.
Even without the debt ceiling deal, many experts felt the probability of another extension was highly unlikely. Recall that when the U.S. first declared the COVID pandemic a state of national emergency, it gave the White House special privileges such as the ability to provide financial relief to citizens.
However, now that the COVID pandemic state of emergency has been declared over, the White House now no longer can act without the approval of Congress. Given the climate of our nation’s political divide, it seems highly unlikely such a proposal would be successful.
How to Prepare to Start Making Student Loan Payments Again
While all of the talk over the past year about Biden’s student loan forgiveness may have provided you with hope, the reality is that it simply hasn’t materialized and may not ever if the Supreme Court decides to move against it. Therefore, you’ll want to use the next few months to get your finances in order and ready to start making your student loan payments again.
Here’s how you can prepare.
Find Out How Much Your Payment Will Be
First things first, log in to your federal student loan account and check how much your first payment amount will be. Also, take note also of how much overall balance you still have remaining.
Begin Tracking Your Finances Immediately
If you’re not already, now is an excellent time to start becoming familiar with what you’re spending your money on and how much each purchase is. An easy way to do this is to use a budgeting app like Buxfer.
Buxfer syncs automatically with your bank and credit card accounts and consolidated them into one convenient report. That will help you to see the whole scope of what’s going on and how much you’re truly spending.
Determine How Much You Can Afford
Compare your monthly expenses against your income. Where do you stand currently – are you in the green or red? Is there already enough room in your budget to cover the student loan payment, or will some cuts be necessary?
Make Adjustments Where Necessary
If you discover that you won’t be able to afford your student loan payments, then it’s time to dig deep. Carefully go through your expenses and begin prioritizing the important ones (like rent, groceries, insurance, etc.). Together with your student loan payments, these are the bills and expenses that you absolutely need to focus on.
From here, go back through all the non-essential expenses and determine which ones can be cut. It won’t be fun, but it’s necessary if you want to maintain a balanced budget.
What To Do If You’re Truly Financially Struggling
If you find that no matter how you adjust your budget you seriously cannot afford to resume your student loan payments, then you’ve got options. Even before the pandemic, the Department of Education was sensitive to its borrower’s financial struggles. To help, they’ve made it possible for some people to qualify for one of four IDR (income-driven repayment) plans.
Essentially, each of the IDR plans takes a borrower’s student loan payment and reduces it based on how much the borrower can afford. This is done by stretching the repayment schedule out to 20 or 25 years. Additionally, any balance that still remains after this time period is forgiven.
IDR plans have helped many federal borrowers to shave hundreds off of their monthly payments. Depending on their situation and income level, it has even lowered the payment for someone households down to $0.
If IDR plans sound helpful, then here’s some even better news. Back in January 2023, the Department of Education announced the layout of the Revised Pay As You Earn (REPAYE) IDR plan – perhaps the most generous one yet. The highlights include:
- An increase in the discretionary income threshold
- A reduction of payments to 5 percent of discretionary income
- The possibility for loans to be forgiven in 10 years instead of 20 or 25 years
- Subsidized interest
- Automatic enrollment to help the borrower avoid default
Unfortunately, given the uncertainty surrounding Biden’s $20,000 student loan forgiveness program, the White House has been very quiet about when REPAYE would become effective. However, until it does, you’re still able to apply for any of the current IDR plans.
Featured image credit: Pexels
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