Things to consider if your federal student loan is being reactivated
In response to the financial difficulties arising from the COVID-19 pandemic, the U.S. Department of Education suspended both the payments and the accrual of interest for federal student loan borrowers. While this provided a welcome financial boost for millions of Americans, the government has decided to resume the accumulation of student loan interest in September, with first payments due in October. Below are a few tips for borrowers who’ll either start or restart their payments this fall.
Possible steps to take with your loan account
1 Explore more affordable payment plans
Featured on the federal student aid site, the loan simulator lets you plug in your plan specifics and explore payment options.
One possible option is an income-driven repayment (IDR) plan, which adjusts your payments based on your earnings and family size. Over the years, this could help save you thousands in principal and interest—but you’ll need to act fast for any chance to switch from standard payments to IDR before your repayment begins in October.
Among the other possibilities the loan simulator will help you explore are loan consolidation, suspending payments, and other alternative repayment strategies. You may find one that helps you get paid up earlier, saves you money each month, or both.
2 Enroll or reenroll in auto pay
Setting up automatic bank account deductions does more than just make loan payments easier; they could also make them smaller. In fact, you can lower your interest rate by 0.25% if you have a direct loan and choose auto pay.
You can sign up for auto pay on your loan servicer’s website. If you were enrolled in this service before payments were suspended, you may need to enroll again.
3 Verify what your monthly payment will be
Sounds obvious, but with this monthly bill entering back into your budget, you don’t want to be surprised.
There are three ways to verify your upcoming payment amount:
- In a disclosure statement that your loan servicer may have sent you as early as this summer
- In the bill for your first payment, which arrives in September
- On your loan servicer’s website
4 See if you qualify for loan forgiveness
If you work in public service, can’t pay due to a disability, or were defrauded by your school, you may be able to have some or all of your loan dismissed. Allowable public service jobs include certain educational, law enforcement, military positions, and more.
Recently, the Department of Education introduced the Saving on a Valuable Education (SAVE) plan, which increases the income certain borrowers can earn and still qualify for reduced payments or no payments at all.
5 Ask about student loan repayment benefits at work
Some employers might make direct payments to your student loan lender. Others may match your loan payments with direct contributions to your retirement plan account. These types of benefits can help make it easier to pay down your loans, balance your budget today, and build savings for your future.
Other ways to prepare for loan repayment
6 Create a budget or update the one you already have
A lot of people talk about budgeting, but far fewer do it. Once you know what your student loan payments will be, figure out a revised budget that includes all your priorities—including saving for major goals such as a home, your children’s future, and retirement.
Making loan payments is never fun, but it can be a lot easier to carry on when you see progress on two fronts in the form of shrinking debt and growing savings.
7 Pay down your student loans early, if you can
Even after your loan is reactivated, you can pay off as much as you want as early as you want with no prepayment penalty. By taking advantage of this fact, you may be able to improve your financial situation in several ways:
- First, it could help you free up money for other important goals, which might include saving and investing
- Second, you get to stop paying interest to your lender
- Third, because eliminating student debt can help improve your credit rating, you can be better positioned for things like applying for a mortgage
Financial advice can help you balance debt and opportunity
If you’re among those about to restart or begin federal student loan payments in October, your first step is to make sure your account is in order: having your address, account balances, auto pay sources, and other information up to date.
Your next step is to make sure that these new payments don’t throw your finances off balance by looking into alternate payment options or creating a new budget.
Guidance can help with this transition. Check to see if financial wellness benefits are offered where you work—many employers and retirement plan providers offer helpful tools and resources—or you may want to talk to your financial professional.
A handy resource for federal student loan borrowers
Studentaid.gov is the Department of Education’s website dedicated to understanding and planning for federal student loans. Where appropriate, we’ve included links to pages on this site.
Important disclosures
Important information
This content is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
MGS-P 468349-GE 8/23-468349 MGR0828233082051