Student loan repayments can start again in September. How to prepare now

It’s right there on the US Department of Education website: Student loan payments to restart after August 31, 2022.

Skeptical?

That’s understandable. The Department of Education has repeatedly set an end date for the federal student loan payment pause that began in March 2020 and then revised it at the last minute to give borrowers more time. The pause has already been extended six times and most borrowers have not made a payment on their debt for more than two years.

What’s more, the timing of this round is particularly sensitive, said higher education expert Mark Kantrowitz.

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Inflation is rising faster than it has in decades, and with November’s midterm elections approaching, Democrats probably don’t want to be the ones handing out another bill to millions of Americans while their budgets are already squeezed. A typical student loan payment is around $400 per month.

“I don’t think the payout will start again on Sept. 1 — two months before the election,” Kantrowitz said. “The student loan moratorium will most likely be extended until sometime next year.”

That being said, no official announcement has been made regarding the extension. Most recently, the Department of Education’s undersecretary, James Quall, said in an interview that payments are still expected to resume after August.

Either way, Kantrowitz said, payments will eventually resume.

“Borrowers should start preparing now,” he said.

Here are three steps borrowers can take now.

Borrowers should pretend payments have already started and direct their regular monthly student loan payments to a savings account, Kantrowitz said. This will make the eventual resumption of payments a little less painful.

Some banks have started increasing the interest rates they offer on people’s savings and it pays to shop around for the best deal, experts say.

Many people’s lives have been changed by the pandemic.

If your circumstances look different than they did more than two years ago, it may make sense to review different student loan payment plans to find the one that best fits your current situation.

The government’s income-driven repayment programs, for example, limit your monthly bill to a proportion of your discretionary income. Some payments turn out to be as little as $0, and any remaining debt after 20 or 25 years is supposed to be forgiven. Meanwhile, the standard repayment plan may come with a higher monthly payment, but if you can afford it, it allows you to pay off your debt in just 10 years.

Use one of the calculators at Studentaid.gov or Freestudentloanadvice.org to compare repayment plans, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit organization.

If you are unemployed or dealing with other financial difficulties, you will have options when payments resume. You can apply for a deferment in case of economic hardship or unemployment. These are ideal ways to defer your federal student loan payments because they don’t charge interest.

However, if you don’t qualify for any of these, you can use forbearance to continue suspending your accounts. Just be aware that interest will accrue and your balance will be larger—probably much larger—when you resume paying.

“To beat the last-minute rush, contact a loan servicer now if you need a deferment, forbearance, or an income-driven repayment plan — unless you happen to like being stuck indefinitely on your loan servicer,” Kantrowitz said .

Three companies that serviced federal student loans — Navient, the Pennsylvania Higher Education Assistance Agency, also known as FedLoan, and Granite State — all announced they would end their relationships with the Department of Education.

As a result, about 16 million borrowers will have another company to work with until payments resume, or soon after, according to Kantrowitz.

For a smooth transition, double-check that your service provider has your current contact information so that you get all the notifications about the upcoming change, Kantrowitz said.

Affected borrowers should receive multiple notices about their new servicer, said Scott Buchanan, executive director of the Student Loan Service Alliance, a trade group for federal student loan servicers.

If you mistakenly send a payment to your old service provider, the money must be forwarded to the new one, Buchanan said.