Student Loan Repayment: What’s Happening Now?

The Supreme Court stuck down the plan to forgive student loan debt. Interest will begin accruing in September, and payments are scheduled to restart in October. Here are some steps to take now to pay back those student loans as well as what forgiveness options are still available.

Repayments Begin

Student loan payments have been deferred since March 2020 – more than three years. If you (or your child) have student loan debt, now is the time to prepare to start those payments. Do the following steps in advance to prepare.

• Log into your account at the Federal Student Aid website to find out which servicer is handling your loans. Make sure your contact information is correct.
• Go to the website of the servicer handling the loan and make sure you can log into your account. Make sure your contact information is correct.
• Check your loan status, your interest rate, and your current repayment plan.
• Review the repayment plan options and determine if it makes sense to switch to a different type of repayment plan, as your circumstances have probably changed over the past three years.
• Consider if consolidating your loans before starting repayment makes the most sense for you.
There is a Student Loan Simulator at the Federal Student Aid site to assist you in discerning which plan is best for you. Do not look just at the lowest monthly payment; look at how much you will be paying over the life of the loan, as your interest continues to accrue.

Repayment Options

There are several repayment options:
• Standard Repayment Plan (fixed payments)
• Graduated Repayment Plan (payments start lower and increase about every 2 years)
• Extended Repayment Plan (fixed or graduated payments to pay off loans within 25 years)
• Revised Pay As You Earn Repayment Plan (REPAYE). This will automatically be changed to the new SAVE plan, just introduced. See details below.
• Pay As You Earn Repayment Plan (PAYE) (payments are approximately 10% of discretionary income)
• Income-Based Repayment Plan (IBR)
• Income-Contingent Repayment Plan (ICR) (payments are approximately 20% of discretionary income)
• Income-Sensitive Repayment Plan (loans not eligible for Public Service Forgiveness)

The new SAVE Repayment Plan replaces the existing REPAYE plan. The SAVE Plan, like other income-driven repayment (IDR) plans, calculates your monthly payment amount based on your income and family size. The SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers. Get more information about the SAVE Plan. Per the Department of Education, this income-driven repayment plan will cut borrowers’ monthly payments in half, help the typical borrower save more than $1,000 per year on payments, allow many borrowers to make $0 monthly payments, and ensure borrowers don’t see their balances grow from unpaid interest.

Specifically, the SAVE plan will:
• Cut undergraduate loans in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income.
• Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment under this plan.
• Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less. The Department estimates that this reform will allow nearly all community college borrowers to be debt-free within 10 years.
• Not charge borrowers with unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.

All student borrowers in repayment will be eligible to enroll in the SAVE plan. You can apply for this program now.

You may want to consolidate your loans through the Federal Student Aid website before you begin repayment. As you can see, there are a lot of options. If you need assistance in choosing the right plan for you, it may be beneficial to talk to a Certified Financial Planner (CFP) or other financial planning professional.

Forgiveness Is Still Available

There are some loan forgiveness plans that continue to be available:
Public Service Loan Forgiveness
If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program. PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
*Federal Family Education Loan (FFEL) Program loans and Perkins Loans may become eligible for PSLF if they are consolidated into the Direct Loan Program.

• Teacher Loan Forgiveness
If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans. You may receive up to $17,500 in loan forgiveness if you were:
– a highly qualified full-time mathematics or science teacher who taught students at the secondary school level; or
– a highly qualified special education teacher (at either the elementary or secondary level) whose primary responsibility was to provide special education to children with disabilities, and you taught children with disabilities that corresponded to your area of special education training and demonstrated knowledge and teaching skills in the content areas of the curriculum that you taught.
– If you didn’t teach mathematics, science, or special education, you may receive up to $5,000 in loan forgiveness if you were a highly qualified full-time elementary or secondary education teacher.

Closed School Discharge 
If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan.

• Perkins Loan Cancellation and Discharge 
You may be eligible to have all or a portion of your Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions). This includes Perkins Loan Teacher Cancellation.

• Other Forgiveness options include:  Total and Permanent Disability Discharge, Discharge Due to Death, Discharge in Bankruptcy (rare cases), Borrower Defense to Repayment, False Certification Discharge, Forgery Discharge, and Unpaid Refund Discharge.

Contact your loan servicer for more information or if you think you qualify for forgiveness.

Will there be any future debt relief?

The United States Secretary of Education initiated a rulemaking process aimed at opening an alternative path to debt relief for as many working and middle-class borrowers as possible, using the Secretary’s authority under the Higher Education Act.

The Department issued a notice, which is the first step in the process of issuing new regulations. The notice announces a virtual public hearing on July 18th, 2023 and solicits written comments from stakeholders on topics to consider. Following the public hearing, the Department will finalize the issues to be addressed through rulemaking and begin the negotiated rulemaking sessions this fall.

By law, regulations related to federal financial aid must go through a negotiated rulemaking process that involves extensive public input.

As this will be a long process, you should begin making payments on your student loans rather than waiting until this is resolved. Interest will start accruing on September 1, 2023, and first payments are due in October. When designing a new debt relief program, the Department of Education will consider ways to ensure that borrowers making payments do not reduce their eligibility for debt relief.

It’s unfortunate that they (President, Department of Education) did not go this route initially, instead of further delays on what the potential outcome might be as payments begin.

As payments resume this fall, the administration is offering some leeway. The U.S. Department of Education will have a 12-month “on-ramp to repayment” from October 1, 2023 to September 30, 2024. During that period, borrowers will be spared from many of the usual consequences of missing a payment. “For example, loans will not go into default and delinquencies will not be reported to credit reporting agencies,” said higher education expert Mark Kantrowitz. “Late fees won’t be charged, either. The 12-month on-ramp is similar to a forbearance in many ways,” Kantrowitz said.

But as is the case with a forbearance, interest will continue accruing on your debt while you don’t make payments. As a result, Kantrowitz recommends borrowers start repaying their bills, if they can.

The information contained in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional for your specific situation.

Filed under: Dollars & Sense, Life, News
Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.