The Student Loan Forbearance Program Has Ended. Now What?

The Student Loan Forbearance Program Has Ended. Now What?

Tips for Paying Off Federal Student Loans

In March of 2020, in response to the COVID-19 pandemic, the Trump administration implemented an interest-free payment pause, known as forbearance, on all federal student loans. As a result, student loan payments were paused, and interest rates were set to 0%. Fast forward three years (and nine extensions) to September 1, 2023, the payment freeze has ended, and loans will once again start accruing interest. This means that beginning October 1, 2023 43.5 million people who currently have federal student loan balances will once again be required to begin making monthly payments toward their loans.

Given the current economic conditions, this added monthly obligation may put additional strain on many individual and household budgets. Considering the standard repayment plan for federal student loans is between 10 and 30 years, this monthly payment will have a longstanding impact on budgets. Fortunately, there are steps that can be taken to help ease the financial impact of paying student loans.

Locate & Contact Your Loan Servicer
If you have federal student loans, the first thing you should do is locate your current loan servicer by logging into StudentAid.gov. Then determine what your current student loan balance is and what your monthly payment and due date will be. This will give you the starting point for deciding how you will meet your monthly student loan repayment requirements.

Create a Budget
One of the most important steps to getting out of any type of debt is to create a budget. There are many budgeting methods you could use, such as the 50/20/30 rule or Pay Your Self First method, but in general, your budget should include a list of all income sources, how much you need for necessities, minimum amounts due for all other debt balances (including your student loans), a set amount to help your build an emergency savings fund, and a discretionary balance to spend on things you enjoy. Any remaining dollars should be put towards paying down your debt above the minimum amounts due. If you find that you have little to nothing left after putting money toward necessities, minimum payments, emergency savings and discretionary spend, you should reevaluate your discretionary spend to see what you can cut back on.

Leverage the 12-month On-ramp Repayment Period
Under the Biden administration, the Department of Education has instituted a 12-month “on-ramp” to repayment period to help borrowers get used to paying their federal student loan debt. During this 12-month period beginning on October 1, 2023, and running through September 30, 2024, borrowers who miss their monthly payments will not be considered delinquent and the missed payments will not be reported to credit bureaus, nor will their loans be placed into default. Keep in mind that student loan balances will still accrue interest during this period, so it is always preferred to at least make minimum payments if possible.

Take Advantage of Available Federal Student Loan Forgiveness and Repayment Programs
While President Biden’s student loan forgiveness plan was blocked by the Supreme Court, you may be eligible for other types of federal student loan forgiveness and repayment programs which could significantly reduce your student loan debt balance and/or modify the amount you owe each month. Here are programs you might qualify for:

• Teacher Loan Forgiveness - If you’re a teacher, you may be eligible for up to $17,500 in loan forgiveness.
• Public Service Loan Forgiveness – if you’re employed by a government or nonprofit organization you could be eligible to for public service loan forgiveness once you’ve made 120 qualifying monthly payments.
• Disability Discharge Student Loan Forgiveness - If you’re totally and permanently disabled, you may qualify for a discharge of some federal student loans.
• Student Loan Forgiveness for Nurses - if you’re a nurse, you may have access to several county, state, and federal student debt forgiveness programs such as the Nurse Corps Loan Repayment Program and the National Health Service Corps Repayment Program. Plus, if you currently work for a hospital or clinic, your employer may even help with repaying your nursing school loans.
• Military College Loan Repayment Program – if you joined the military after attending school, many U.S. military branches offer student loan forgiveness programs to for already contracted student loans.
• Income-driven Repayment Plan – If your federal student loan repayments are high compared to your income, you may be able to set your monthly student loan payment at an amount that is affordable compared to your income and family size. One example of an income-driven repayment plan is the SAVE Plan. Under the SAVE Plan, if you are making $32,000 or less, your monthly payment could be $0. If you make more than $32,000, you could still save at least $1,000 per year.

Refinance your loan
Whether you have federal student loans, private student loans, or a combination of the two, refinancing your student loans into a single private loan with another financial organization may save you money. If the new loan has a lower interest rate than your existing loans you will pay less in interest over the term of the loan.  Plus, by having only one monthly payment you can potentially pay off your loan faster by consolidating all your previous monthly payments into one large payment.  However, it is important to point out that refinancing a federal student loan into a private loan means losing features specific to federal loans such as the option to tie payments to income and get loans forgiven if you work for the government or a nonprofit.

While the end of the COVID-19 student loan forbearance program could have a negative impact on individual and household budgets, they don’t have to break the bank. Combining a disciplined budget, with available federal student loan forgiveness and repayment plans, could help ease the impact on your monthly budget.