While the student loan pause lasted for more than three years during the COVID-19 crisis, payments are set to restart later this year. Almost 44 million borrowers have federal student loan debt to start paying back on Oct. 1, totaling more than $1.7 trillion.
Even though the Biden administration lost its bid for student loan forgiveness earlier this year, borrowers can expect some relief with a new repayment plan. Student loan expert Tara Siegel Bernard answers your big questions on student loan cancellation, forgiveness, and repayment.
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1. Is The Student Loan Payment Pause Ending?
The student loan pause is ending later this year and student loan payments are set to resume Oct. 1.
“Interest hasn’t been accruing since March of 2020,” Bernard says. “It was essentially like the government had pressed the pause button on your payment and it was like the loans were frozen in time. Now, they’re defrosting quickly.”
Most borrowers will see interest start to accrue again on Sept. 1 before payments are due. Luckily, the government isn’t backdating interest, so there won’t be a major jump in interest charges when you start making payments.
2. Will Student Loans Be Paused Again?
Unfortunately, student loans won’t pause again, barring any major catastrophic events, like the COVID-19 pandemic. But the Biden administration is working on making repayment easier and in some cases, loans could get forgiven.
Some folks have used the pause to save for the unknown, which might be helpful.
“I’ve heard that a lot of people were saving money in interest bearing accounts and waiting to see what might happen,” Bernard says. “If you’ve been saving money all along and you have an emergency fund already, [making a lump-sum payment] isn’t such a bad idea.”
While paying off debt, including student loan debt, is a good idea, think about all your income and spending habits. For instance, instead of making a lump-sum payment, can you earn more by putting that money into the stock market or in a high-yield savings account? For borrowers who have low student loan interest rates, you may want to keep making minimum payments and put extra cash towards places that’ll earn you more money.
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3. How Does The SAVE Plan Work?
When the Supreme Court struck down the Biden administration’s student loan forgiveness plan in June, it didn’t take long for the President to come up with an alternative plan for borrowers.
The Saving on a Valuable Education (SAVE) Plan will soon replace the REPAYE Plan. This plan calculates your payments based on your income and household size.
“SAVE is an improvement over the old prior programs because it’s going to cut many borrowers’ payments by half,” Bernard says. “It’s going to be on a kind of smaller pool of your income. In effect, it makes your payment less.”
Some of the SAVE Plan highlights include:
- Increasing the income exemption from 150% to 225%. That means if you earn $32,800 or less per year as a single borrower, you won’t even make loan payments.
- Removes remaining interest. Currently, if you make payments that aren’t large enough to cover both the principal and interest, that interest carries over. “That’s why you see so many people who religiously make payments [and] at the same time, they see their balance is growing,” Bernard says. “Psychologically, it’s like ‘I’m making payments, yet my balance is continuing to balloon. What’s happening here?’ That’s not gonna happen in this new plan.”
- Takes away spousal income requirements. In other IDR plans, income from your spouse contributes to how your payments get calculated. With the SAVE plan, that’s no longer the case.
- Forgiveness comes faster. If you have an original principal balance of $12,000 or less, your remaining balance will be forgiven after 10 years of payments. Most other IDR plans forgive loans after 20 or 25 years — depending on the plan — regardless of your initial balance.
4. Can I Get Onto The SAVE Plan?
Those who are already on the REPAYE Plan will automatically enroll in the SAVE Plan. If you’re already on an income-driven repayment plan, you can switch to REPAYE now or switch to SAVE once it becomes available.
“As long as you have a direct loan, you qualify for the program,” Bernard says. “With a federal loan, it comes with a series of protections, including these income driven repayment programs and public service loan forgiveness.”
Keep in mind that Parent PLUS loans don’t qualify for SAVE, although once consolidated, you may qualify for an income-contingent repayment (ICR) plan.
5. Will There Ever Be Student Loan Forgiveness?
“The Biden administration isn’t entirely giving up on cancellation,” Bernard says. “They’re trying other avenues, but I wouldn’t hold my breath.”
While cancellation is a tough road to take, there are other ways you might qualify for forgiveness, including:
- After making payments on an IDR. You might qualify for forgiveness after 10, 20, or 25 years of repayment, depending on which plan you have.
- Public Service Loan Forgiveness (PSLF). You’ll need to have a qualifying job while you’re making payments. You’ll also need to make 120 qualifying payments, or up to 10 years’ worth of payments, before being considered for PSLF. You’ll also need to be on a qualifying repayment program, including IDR plans like SAVE.
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