Student Loan Debt Relief Blocked: 6 Steps to Manage Your Payment this October

In unfortunate news for federal loan borrowers, one-time federal student loan debt relief has been blocked by the U.S. Supreme Court. The Court ruled that the Department of Education does not have the executive authority to provide up to $20,000 in debt relief to the 26 million federal student loan borrowers that applied for it (and 16 million were approved for). This comes after the June 3 signing of the Fiscal Responsibility Act of 2023, often referred to as the debt ceiling bill, that legislated that the student loan payment pause cannot be extended past August 2023, and confirmation by the Department of Education on June 12 that interest will resume on federal student loans on September 1, 2023, and monthly payments will begin in October 2023. Borrowers will receive billing statements at least 21 days prior to their due dates.

After 3.5 years of no interest accrual and no payments due, the return to student loan repayment will be a challenge for many borrowers. A 12-month grace period, which is being called an on-ramp to repayment, will give borrowers leeway in payment resumption and delay negative credit reporting for missed payments. However, interest will still accrue and missed payments will not count towards Public Service Loan Forgiveness (PSLF) or income-driven repayment (IDR) forgiveness.

Borrowers who intend to pay under an income-driven repayment (IDR) plan: The Revised Pay As You Earn (REPAYE) plan has been rebranded to Saving on a Valuable Education (or SAVE plan, for short) and will result in more manageable monthly payments for many borrowers. Some of the benefits under the SAVE plan will be in place when payments resume, but the remaining updates will become effective July 2024. Those with all undergraduate federal loans may see a slight payment reduction this fall, followed by payments cut in half next July.

President Biden announced on the afternoon of June 30 that the Department of Education has begun the process of attempting one-time federal student loan debt relief using the Higher Education Act of 1965. If successful, this route will take more time to implement, and borrowers should not count on any forgiveness prior to payment resumption. 

Now is the time for borrowers to take action to prepare for student loan repayment. Implement these six steps today to make for a more successful resumption of payments in the fall:

1. Find Your Loans
   • Find out how much debt is owed, what the interest rates are, and who your servicer is. 
   There have been many servicing changes over the past couple years, with servicers exiting the federal servicing space and MOHELA taking on Public Service Loan Forgiveness (PSLF) servicing. The most common servicers are currently Aidvantage, Edfinancial, MOHELA, and Nelnet. Head over to the Federal Student Aid (FSA) website to confirm your servicer. If you forgot your FSA ID, you can reset it.
   
   • Access your servicing account and update contact information.
   Borrowers who have not yet been in repayment or those assigned to a new servicer must head over to your servicer’s website to register your account. Your servicer’s website is where you will make your monthly payments. If you already have an account, take a moment to log into your servicer’s website to confirm your contact information is current. Look out for email and text updates from your servicer and the Department of Education this summer.
2. Estimate Your Monthly Payments
   Log into the Federal Student Aid (FSA) website to access the Loan Simulator. The Loan Simulator will assist you by calculating the various repayment plans using your actual federal loan balances. You will also be prompted to enter your salary information to estimate payments for the various income-driven repayment (IDR) plans. The results will show you the different monthly payment options, along with the estimated total cost of borrowing and expected pay off date for each. Start assessing now which monthly payment will work best for you, while also considering the overall cost of your loan.
3. Evaluate Your Budget
   Now that you have started to consider different monthly payments, this is an excellent time to update your monthly spending plan. Working through your income and expenses will help you determine which monthly payment works best for you at this time. Establish areas that you may be able to cut out or down on spending to make your student loan payment more manageable.
4. Choose a Repayment Plan
   You will need to use your servicer’s website to select the repayment plan you wish to use prior to October 2023.
   
   If one of the income-driven repayment (IDR) plans is going to work best for you—especially if Public Service Loan Forgiveness is your goal, you may apply/recertify for one of these IDR plans as early as now. If you have never used an income-driven repayment plan before or consolidated in the past three years, then you will need to apply.
   
   If you were using an income-driven repayment plan back in early 2020 before the payment pause began, you may only want to recertify now if your salary has decreased and/or family has grown since you last confirmed your income. The Department of Education has pushed out the annual recertification for borrowers for at least 6 months after the payment pause ends. You will be able to continue previous IDR payments until your recertification date and you will receive notification when it is time to recertify. Run the Loan Simulator to compare IDR payments to determine if recertifying now will benefit you by reducing your monthly payment. If your payment will increase, then hold off.
   
   • Apply/Recertify for income-driven repayment.
   To apply/recertify for IDR, you should stay signed into the FSA website and head over to the Income-Driven Repayment (IDR) Plan Request. This summer the IRS Data Retrieval Process is being replaced by a secure disclosure with the IRS. When you provide consent for the Department of Education to access your tax information, this will allow automatic recertification starting in 2024. If your income has dropped since your last tax filing or if separated from your spouse, there will be an opportunity to indicate these changes towards the end of the application.
5. Start Setting Aside Your Monthly Payment
   Get in the habit of paying your student loans now. Set aside funds for your student loan payment over the next few months. It will help the payment feel less daunting this fall. With this strategy, you will have a few months of extra funds put away before you go into repayment.
   
   For example, if you have an average $350 monthly payment that you save for the months of July, August, and September—you now have $1,050 to pay down your federal student loans before repayment resumes.
   Another excellent option is to use these extra funds to pay down higher interest rate debt, like credit cards or private student loans. Or start or add to your emergency fund. Use these next few months to make that a priority while you do not have a federal student loan payment.
6. Set up Auto-Debit for October 
   Payments set up for auto-debit each month will ensure that you are not delinquent (subject to late charges) and it benefits you with a 0.25% interest rate reduction for federal loans. Access your servicing account to sign up. Most borrowers who have used auto-debit in the past need to enroll again.

Please do not wait until this fall to create a plan for your federal student loans. Make time this summer. The earlier you walk through these steps, the less stressful student loan repayment will feel in the fall.