Student loan payments resume: What to know as repayment begins in October

For the first time in more than three years, federal student loan borrowers will be required to pay their monthly student loan bills starting in October.

The pandemic-related pause, which went into effect in March 2020, provided relief to nearly 44 million borrowers by freezing their accounts.

After several extensions by both the Trump and Biden administrations, the pause has finally expired after Congress prohibited the president from extending it another time.

Restarting payments all at once for so many borrowers will be an unprecedented task. Here's what borrowers need to know:

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When do payments restart?

For most borrowers, the first payment will be due sometime in October - but not everyone has the exact same due date.

Borrowers can expect to receive their bill, listing their payment amount and due date, at least 21 days beforehand.

Those who graduated in the spring do not have to make payments until the grace period expires, usually six to nine months after leaving school.

When did interest resume?

Interest started accruing again on September 1, after rates were effectively set to 0% since March 2020 for federal student loans. Now, interest rates, which are fixed and vary by loan, have returned to the same rate they were before the freeze.

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Interest is now racking up and borrowers wonder if they'll ever be able to pay off their balances.

Will my payments be the same as before the pause?

Generally, borrowers can expect their monthly payment to be the same as it was before the pandemic pause. Unless a borrower made optional payments or other changes to their account, like consolidating their loans, federal student loans were essentially frozen in time.

Normally, borrowers enrolled in income-driven repayment plans, which base payments on income and family size rather than debt amount, are required to recertify their income once a year. If their income went up or down, so will their monthly payments.

But borrowers were not required to submit their income information during the pause and won't have to until March 2024 at the earliest, according to the Department of Education.

It's worth noting that borrowers are still allowed to recertify their income and may want to do so if they have experienced a decrease in pay or increase in family size, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that provides free student loan advice.

How do I find out who's servicing my loan?

Millions of borrowers will have a different loan servicer - the company or organization handling payments - than they did when the payment pause went into effect in March 2020.

For example, FedLoan and Navient have ended their contracts with the Department of Education within the last three years. Loans previously held by those servicers have been transferred to Aidvantage, EdFinancial, Nelnet or Missouri Higher Education Loan Authority, known as MOHELA.

Borrowers can log in to the Federal Student Aid website, at this link, to find out who is servicing their loans. They should also check to make sure the servicer has all of their correct contact information.

My payments were automatic before the pause. Will that continue?

Even if a borrower was enrolled in automatic payments before the pandemic payment pause, they will likely need to reenroll by logging in to their servicer's website.

Auto pay is optional, but borrowers will save 0.25% on their interest rate if they choose to enroll.

Before the Covid-19 pandemic, it typically took about a month or two to set up auto pay, according to Mayotte.

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Those with federal student loans can apply for President Biden's SAVE program for the chance to lower their bills.

How do I choose the best repayment plan?

Borrowers are automatically enrolled in a standard, 10-year repayment plan - but they can apply for several different kinds of income-driven plans that could lower their monthly payments.

Income-driven plans tie monthly payments to a borrower's income and family size and don't take the amount of debt or interest rate into account.

A borrower can request to enroll in an income-driven plan online. After submitting some information, a simulator will show how much a borrower's payments will be under each plan.

Income-driven plans can be a good option for borrowers who are struggling to afford their monthly payments. But note that if a repayment plan lowers monthly payments, it may also increase how much is paid back over time due to interest and extend how long it takes to pay the loan off. It may not be the best option for everyone.

A new repayment plan launched this summer, called SAVE (Saving on a Valuable Education), offers the most generous terms and will likely offer the smallest monthly payment for lower-income borrowers.

Borrowers can generally switch plans whenever they want. Borrowers should expect it to take about four weeks for a loan servicer to process an income-driven plan application, Biden administration officials have said.

If borrowers haven't made any changes to their student loans, they can expect to be enrolled in the same repayment plan as they were before the pandemic pause - unless they were enrolled in the REPAYE (Revised Pay As You Earn) Plan. Those borrowers have been automatically switched to the new SAVE plan.

What happens if I don't pay my student loan bill?

Because interest restarted accruing on September 1, not making a payment will result in borrowers owing more on their student loans over time.

But for the next year, through September 30, 2024, the government is providing what it's calling an "on-ramp period," during which borrowers are shielded from other normal consequences of missing a payment. A loan servicer won't, for example, report the loan as being in default to the national credit rating agencies.

Borrowers don't need to apply for this benefit.

Normally, a loan goes into default after a borrower fails to make a payment for at least 270 days, or about nine months.

A default can negatively affect your credit score, making it harder to buy a car or house. It could take years to establish good credit again. Borrowers could also see their federal tax refund or even a portion of their paycheck withheld.

Once in default, the borrower can no longer receive deferment or forbearance and would lose eligibility for additional federal student aid. At that point, the loan holder can also take the borrower to court.

My student loans are already in default. What can I do?

Borrowers who fell into default before the pandemic pause started in March 2020 can apply for the Department of Education's "Fresh Start" program.

If borrowers use Fresh Start to get out of default, their loans will automatically be transferred from the Department of Education's Default Resolution Group to a loan servicer and returned to an "in repayment" status, and the default will be removed from their credit report.

To claim these benefits, log in to myeddebt.ed.gov or call 800-621-3115. The process should take about 10 minutes, according to the Department of Education.

What happened to Biden's student loan forgiveness program?

In June, the Supreme Court struck down President Joe Biden's student loan forgiveness program, blocking millions of low- and middle-income borrowers from receiving up to $20,000 in federal student debt relief.

That means payments will resume without this particular student loan forgiveness in place.

The Biden administration is currently pursuing another pathway to providing some student debt relief, but it's not clear who would be eligible or how much debt would be canceled. This pathway requires the Department of Education to undertake a formal rule-making process, which typically takes months or even years - and could still face legal challenges.

Are there other ways to get student loan forgiveness?

The Biden administration has made it easier for many borrowers to seek federal student loan forgiveness from several existing debt cancellation programs - altogether approving roughly $117 billion in loan discharges for more than 3.4 million people through early September.

This summer, the Biden administration announced it was canceling $39 billion worth of federal student loan debt for 804,000 borrowers after carrying out a one-time adjustment to some borrowers' accounts. The recount was aimed at more accurately counting certain payments made previously under an income-driven repayment plan.

The administration has made it easier to qualify for the Public Service Loan Forgiveness program, for example, which cancels remaining debt after a public sector worker makes 10 years worth of qualifying monthly payments.

The Department of Education has also made it easier for borrowers who were misled by their for-profit college to apply for student loan forgiveness under a program known as borrower defense to repayment, as well as for those who are permanently disabled.

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