At the beginning of the pandemic, the Department of Education decided to freeze payments on federal student loans. The freeze, or forbearance period, has been extended multiple times over the two years but is likely to expire soon. There have been rumors of future student loan forgiveness legislation, but at this time, there are still no broad-sweeping plans.
Nearly 60%, close to 11.5 million, federal student loan borrowers have not made any payments on their loans since the freeze. A majority of borrowers likely need a refresher on repayment.
In this guide, we’ll help prepare you for when federal student loan payments resume, covering:
- When payments begin
- The new fresh start initiative
- Public service student loan forgiveness waiver
- How to prepare your budget for federal student loan repayments
- Relief options for those under hardship
When Do Repayments Begin?
Payments will restart 60 days after the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023, payments will resume 60 days after that.
Payments were initially paused in March 2020 with the COVID-19 Emergency Declaration. On Jan. 30, 2023, the Biden Administration announced its intent to end the national emergency and public health emergency declarations on May 11, 2023, related to the COVID-19 pandemic. Though the federal student loan pause has been extended multiple times, it seems unlikely it will be extended again.
What is the “Fresh Start” Initiative?
When the Biden administration announced the extension of the federal student loan freeze in April 2022, it also announced a "Fresh Start" initiative for borrowers which will continue through one year after the COVID-19 payment pause ends.
Federal student loan borrowers who were in delinquency or default before the pandemic will have their loans fully rehabilitated and placed in good standing at the end of the freeze.
How does it apply to me?
This fresh start policy applies to any borrowers who are:
- Delinquent, meaning they missed a student loan payment or made the payment up to 90 days late
- In default, meaning they missed multiple student loans payments (at least 270 days)
Fresh start gives borrowers a chance to get their loans back in good standing. This is important as both delinquent and defaulted loans are reported to the credit bureaus and can harm your credit report. Those marks can follow you for years and keep you from getting approval for everything from credit cards to future mortgages.
In addition, if you default on your federal student loans, the government can withhold state and federal tax refunds and Social Security payments or even garnish your paycheck to take the missed payments.
With a fresh start, accounts in delinquency or default will be reset, giving the borrower the chance to start again.
The Limited PSLF Waiver Has Ended, What's Next?
In reaction to COVID-19, the Dept. of Education has temporarily changed some of its policies around Public Service Loan Forgiveness. This means some federal student loan borrowers may qualify for credit for past payments even if they didn’t before.
Thallows federal student loan borrowers the opportunity for credit for past payments even in the case of late payments, partial payments, or a change in their repayment plan.
Although the waiver ended on Oct 31, 2022, borrowers who work in public service will have another opportunity to have their payment count increased under a one-time account adjustment.
Through the one-time account adjustment, borrowers with Direct Loans will be provided with many of the same benefits that were available under the limited PSLF waiver. Borrowers who do not have Direct Loans can consolidate and receive PSLF credit for prior payments as part of the one-time account adjustment, as long as they submit a consolidation application by May 1, 2023.
Getting the PSLF waiver could be an opportunity to pay down your loans faster. Use Chipper’s student loan repayment calculator to see just how much you may save.
Preparing for the Return of Student Loan Payments
Things may have changed while your loans were on pause. Consider taking these steps to prepare before the freeze ends.
Confirm your servicer
Your servicer’s platform may have changed, or perhaps you just forgot your log-in. Regardless of the reason, start by logging into your servicer and reviewing your account information.
Forgot who your servicer was? Sign in to your Federal Student Aid account for your details. You can also call 1-800-4-FED-AID (1-800-433-3243) to find your servicer information.
Once you’re in, check and update the basics, such as:
- Bank account
- Annual income
- Contact information
Double-check the due date
Your loan payment could be due as early as September 1, and if you’ve been granted a fresh start, it’s best to avoid delinquency again.
From your servicer platform, determine when your next payment is due. Consider setting up an automatic payment to ensure you won’t forget.
Rebalance your budget to accommodate monthly payments
Now that you know when the payment is due, you should figure out how much you’ll need to pay. This should be listed right on your dashboard, but the number may shock some.
Most federal borrowers didn’t make any student loan payments during the freeze, so reintegrating the expense into your budget may come as a bit of a shock.
Not sure if you can make room in your budget for payments again?
Consider the following:
- Cancel subscription services, or keep one streaming service at a time
- Find money you won’t miss with Chipper Round-Ups, which rounds up your transactions to the nearest dollar, adding the spare change to your student loan payments
- Revisit your cell phone plan, and see if you can negotiate with your provider for a cheaper monthly payment
- Cut back on costly gym memberships, especially if you’re not using them frequently
- Consider taking on a side hustle or asking your employer for a performance-based raise
Update your repayment strategy
Chances are your finances have changed in the past few years. You may be making more than you previously did, or perhaps a financial hardship means your budget is tighter. If you don’t change your plan, the loan servicer will automatically re-enroll you in its standard plan.
Before the end of the freeze, revisit your repayment strategy. Can your budget a few more dollars each month for your loan? Or is money tight enough that you may need to scale back or reconsider your repayment strategy altogether?
Figuring this out before the first payment is due can reduce last-minute stress and allow you to explore alternative repayment plans or deferment.
Consider an income-driven repayment plan
If you can’t afford federal student loan repayments at this time, consider applying for an income-driven repayment (IDR) plan.
There are four different IDR plans for borrowers with federal student loans:
- Income-Based Repayment (IBR) Plan
- Pay As You Earn Repayment Plan (PAYE)
- Revised Pay As You Earn (REPAYE) Plan
- Income-Contingent Repayment Plan (ICR)
Each of these repayment plans has its own qualifications and payment schedule. Use Chipper’s student loan repayment calculator to find an IDR plan that fits your finances. Simply share some financial information, then compare your options across IDR plans to select the one that suits your needs best. Once you’ve decided, Chipper can guide you through the IDR plan application.
Explore deferment or forbearance, if necessary
In some cases, borrowers may seek student loan deferment or forbearance.
Deferment allows borrowers to stop making payments temporarily. However, in some cases, interest can still accrue during deferment. Additionally, payments are added to the end of the loan, extending the repayment period by the length of the deferment. This is known as interest capitalization and lengthens the term of your loan, even increasing the total repayment amount.
In most cases, borrowers will be approved for deferment due to the following:
- Medical treatment
- Economic hardship
- Starting graduate programs
- Enrolled at least part-time in school
- Military service
- Rehabilitation treatment
Not all federal student loans qualify for deferment.
Forbearance is similar to deferment, with one exception. The payments skipped during the period are due at the end of the forbearance period. If a borrower applies for a year-long forbearance, they’ll owe 12 months of skipped payments at the end of the year. Like deferment, some student loans can still accrue interest while paused.
Forbearance may be granted in some of the following instances:
- Financial hardship
- Medical expenses
- Change in employment status
You need to apply to qualify for deferment and forbearance. Generally, it’s worth exploring IDR plans thoroughly before applying for deferment or forbearance, as they’re only temporary solutions to the problem. Additionally, deferment and forbearance could impact future student loan forgiveness, depending on what you qualify for.
However, there is an exception. If you are a teacher who may be eligible for teacher student loan forgiveness, you can apply for Teacher Loan Forgiveness Forbearance. This means you don’t have to make monthly payments on your loan (though interest will accrue). Teachers may do this to maximize their forgiveness amount.
For example, suppose a school teacher who qualifies for Teacher Loan Forgiveness applies for forbearance throughout their service. In that case, they could be forgiven for their full loan amount at the end of the service period.
Before the federal student loan freeze comes to an end, it’s important to create a plan to tackle your loans when they come due. If repayment is a challenge at this time, consider IDR plans or other forms of relief.
You don’t have to figure out how to budget student loan payments. Chipper can help you find the right repayment plan, put extra cash towards your payments, and more. Try Chipper today to help get ahead of the end of the student loan freeze.