Student loan payments to restart soon as pause ends: Key dates to remember.

Student loan payments to restart soon as pause ends: Key dates to remember

Introduction

As the end of the student loan repayment pause approaches, it is essential to be aware of the key dates and important information regarding the restart of student loan payments. With interest set to begin accruing again on September 1 and the first debt repayments scheduled for October, it is crucial for borrowers to understand the timeline and take necessary actions to prepare for the resumption of payments.

Background

At the end of March, the New York Federal Reserve reported that nearly 44 million Americans held student loans valued at over $1.6 trillion. After a 3-1/2-year break from repayments and interest, restarting student debt payments is expected to present challenges for many borrowers. To assist in a smoother transition, it is important to familiarize oneself with the timeline of events and mark the relevant dates on the calendar.

Aug. 1

The Biden administration has introduced a new income-driven repayment plan known as the Saving on a Valuable Education (SAVE) plan. This plan aims to reduce borrowers’ monthly payments and eliminate unpaid monthly interest charges. It also increases the income exemption from 150% to 225% of the poverty line and eliminates the need for a spouse to co-sign the application. Additional benefits under the SAVE plan will begin in July 2024.

To enroll in the SAVE plan, individuals who are not already enrolled in an income-driven repayment plan (IDR) or need to switch plans can apply on the Department of Education website. For those already enrolled in the “REPAYE” income-driven plan, they will be automatically moved to the SAVE plan. Applying during the summer ensures that the application will be processed in time for the first payment due date. It is important to note that servicers may require a few weeks to process the application as they obtain documentation of income and family size.

Autopay Enrollment

In August, borrowers have the option to enroll in autopay. Choosing autopay can result in a 0.25% reduction in interest rates. Those already enrolled in autopay before the pause began are automatically enrolled, while those who enrolled after the pause need to contact their servicer and reenroll.

Aug. 31

If borrowers do not plan to make a payment in September, they must notify their servicer by August 31. Failure to do so may result in the servicer applying an administrative forbearance on the loan, meaning no payment will be due. Opting out of this forbearance allows borrowers to make payments in September.

Sept. 1

On September 1, interest on student loans will begin accruing again. If borrowers choose not to make a payment in September, they will be charged interest for this month. It is important to be aware of this date and its implications for loan balances.

Billing and Payment

In September, many borrowers will receive their bill, which will include the payment amount and due date. Bills are typically sent out at least 21 days before the due date, providing borrowers with sufficient time to prepare for their first payment.

October

October marks the month when borrowers will make their first payment after the pause. It is crucial to be financially prepared and ensure that funds are available to meet this obligation.

Dec. 31

For borrowers with loans not held by the Department of Education, such as commercially held Federal Family Education Loans (FFEL), school-held Perkins loans, or Health Education Assistance Loans (HEAL), it is necessary to consolidate the loan into a new Direct Consolidation Loan before December 31. This consolidation is essential to receive credit for the loan under the income-driven repayment (IDR) account adjustment.

A one-time IDR account adjustment can impact the eligibility of certain payments or months towards loan forgiveness. Borrowers working in public service must submit an employment certification form and Public Service Loan Forgiveness application no later than the end of 2023. If there are remaining payments after the review, borrowers will need to enroll in an IDR plan.

2024

In 2024, borrowers who were on an IDR plan before the payment pause will have at least six months (or until around March 2024) to recertify their income. Typically, recertification must be done annually, but borrowers may want to recertify early if their income has decreased or their family size has increased. Recertifying early allows for a lower payment adjustment if applicable. The recertification process can be done using the IDR application and selecting the appropriate option.

July 1, 2024

Additional benefits under the SAVE plan will commence on July 1, 2024. Undergraduate loans will be reduced by half, from 10% to 5% of income above 225% of the poverty line. Borrowers with both undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income based on the original principal balances. The plan also offers forgiveness options, with borrowers with original principal balances of $12,000 or less receiving forgiveness after making 10 years of payments. The maximum repayment period before forgiveness increases by one year for every additional $1,000 borrowed. Consolidated loans will receive credit for a weighted average of payments towards forgiveness, based on the principal balance of the loans being consolidated. Borrowers will automatically receive credit for certain periods of deferment and forbearance, and additional “catch-up” payments can be made to obtain credit for other periods. Furthermore, borrowers who are 75 days late will be enrolled in IDR if they have agreed to allow the Department of Education access to their tax information.

Sept. 30, 2024

On September 30, 2024, the “on-ramp” period expires, and unpaid federal student loans become delinquent. This 12-month period from October 1, 2023, through September 30, 2024, allows borrowers who missed monthly payments during this time to avoid delinquency, credit bureau reporting, default, or referral to debt collection agencies. It is crucial to make payments during this period to maintain good standing.

The same date also marks the last day for borrowers to apply for the “Fresh Start” program. This program provides an opportunity for borrowers in default before the pandemic to become current on their loans.

Conclusion

As the pause on student loan payments comes to an end, it is important for borrowers to be well-informed and prepared for the restart of repayments. By understanding the key dates and taking necessary actions, borrowers can navigate this transition effectively and ensure financial stability in the face of their student loan obligations.