The world of student loans and repayment plans was confusing enough before the pandemic, the subsequent long pause, and now, what can be a seemingly chaotic restart of payments. Here are a few things to know that may help borrowers understand and navigate their options. 
The new federal student loan repayment plans make some undergraduate borrowers who owe less than $12,000 eligible to have the balance of their loans forgiven after 10 years, offers temporary options for reentering repayment, new income-based payment plans, and more pathways to forgiveness.
Restarting Payments
Interest began accruing again on federal student loans after September 1, 2023, and new due dates for most borrowers began around October 1, 2023. The Federal Student Aid office can assist borrowers entering repayment, but first, borrowers must update all contact information with that office and their loan servicers to receive up-to-date information about payments.
The Department of Education has also created an “on-ramp” program that will run through September 2024, making transitioning to repayment more
flexible. Borrowers are advised to make their payments, but those who make partial or late payments, or miss them altogether, will not be reported to credit bureaus. Borrowers who have defaulted on loans may now have access to the “Fresh Start” program, which offers a path out of default and, with it, its negative consequences, including collection activities. However, borrowers must be proactive about claiming their full benefits under this program.
New Repayment Options
Some borrowers can apply for a new income-based repayment plan, SAVE (Saving on a Valuable Education). The plan has much more flexible parameters than existing such programs, and payments are determined by income rather than the amount owed. In fact, the Education Department estimates that this will save borrowers at least $1,000 a year.
The SAVE plan increases the amount of the borrower’s income that is exempted from repayment from $21,870 to $32,805. That means those making less than $32,805 a year will not owe larger monthly payments but will still receive credit toward loan forgiveness. SAVE also eliminates unpaid interest if the monthly payment does not fully cover interest.
Starting on July 1, 2024, borrowers with undergraduate loans will make payments based on 5% of monthly discretionary income, compared with 10% under existing plans. Undergraduate borrowers owing less than $12,000 will have the balance of the loans forgiven after 10 years of payments, unlike the up to 25 years required now. Borrowers currently enrolled in the REPAYE plan will automatically be enrolled in SAVE.
Understanding all the options and deciding on your course of action can still be confusing – the best source for information is the Federal Student Aid web site. If you have further questions or concerns, contact a financial advisor to discuss the course of action that best suits your situation and circumstances.
