How to Prepare for Student Loan Repayment

How to prepare for student loan payments starting again?

The temporary pause on federal school loan payments gave a financial breather to millions of Americans who were feeling overwhelmed during the COVID-19 pandemic. The pause on student loan payments allowed families to focus on other financial priorities, such as building an emergency fund or enjoying a period of reduced financial stress. However, the resumption of student loan payments is here, which means now is the time to shift gears and prepare for what’s next. 

Whether you’re a recent graduate or a long-time borrower, understanding the timeline for repayment, your loan details, and the various repayment options is crucial to your financial well-being. This guide will walk you through key dates, actionable steps, and important considerations to keep in mind as you prepare for the next phase of your financial journey. 

When will student loan payments restart?

Federal student loans began accruing interest again on September 1, 2023, and resumed in October 2023. Taking proactive measures for planning and budgeting is essential to ensure you can pick up your payments where they left off before the COVID-19 pandemic.  

The importance of avoiding late payments and penalties

If you’re grappling with how to deal with student loans, understanding how to avoid late payments is an excellent place to start. Here are some tips to help make sure you don’t miss a payment: 

• Payment Due Dates: It might sound basic, but the first step is knowing when your payments are due. Simple tips like writing down the due dates on a calendar, setting up reminders on your phone, or sticking a post-it note on the refrigerator can all serve as simple reminders. The key is to be proactive, so the date doesn’t sneak up on you. 
• Set Up Autopay: Consider automating your federal student loan payments. Most loan servicers have an autopay feature, and some private lenders like Ascent even offer discounts for setting up automated payments. When enrolled in autopay, your monthly payment is automatically deducted from your bank account, so you won’t have to remember to make an active payment each month. 

• Stay Informed: Keep an open line of communication with your loan servicer. This way, you’ll be the first to know if they make any changes or updates to your terms or payment status. This can prepare you to adjust your payment strategy if needed. 
• Set Up an Emergency Fund: Life is unpredictable, and having a small emergency fund can be a lifesaver if you face unexpected expenses in a particular month. You can still make your student loan payment with an emergency fund without unnecessary financial stress. 

What to do if you can’t make a payment

Life happens, and sometimes, making a payment on time might not be possible. Remember that you’re not alone in this, and there are options to help ease the financial burden. If you find yourself unable to make a payment, here are a few options you may want to explore: 

• Loan Forbearance: Loan forbearance allows you to temporarily halt student loan payments, though interest will still accumulate. This option may help borrowers during brief financial setbacks, such as a temporary job loss. However, since interest will continue accumulating, it may not be a long-term solution.  
• Loan Deferment: Loan deferment also pauses payments, but interest might not accrue during the deferment period for some loans. Loan deferment has specific eligibility criteria and is best suited for borrowers facing long-term financial barriers. 

Always verify details with your loan servicer to understand the options available to meet your unique financial circumstances. 

Things to do to prepare for student loan repayment

Preparation is critical to a smooth transition back into repayment. Here are some steps you can take to set yourself up for financial success. 

1. Understand your loan details

First, familiarize yourself with the specifics of your loan. What is the interest rate, and what is the remaining balance on the loan? Knowing these details can help you create an effective repayment strategy and make more informed financial decisions. 

2. Be proactive

Loan servicers are mandated to send notifications to borrowers before student loan repayment starts, but staying ahead of the curve can help you avoid negative impacts on your credit. Check your registered mailbox, email, and loan servicer’s online portal to ensure you get all critical updates and changes. Even if your loans fell out of good standing before the pandemic, being informed will help you budget accordingly and help you transition back into the repayment phase. 

3. Stick to a budget

Budgeting isn’t just about cutting back on lattes; it’s about understanding where your money goes each month and how much you can realistically allocate toward loan payments. If you’ve been using the payment pause to build up savings, consider how much you can use to make a significant payment on your loan. This can help you pay off your loan faster and reduce future interest accumulation. 

Understanding loan forgiveness and repayment plans

Loan forgiveness isn’t just a hopeful thought—it’s a tangible possibility for certain borrowers who meet specific criteria. Below are a few loan forgiveness options for those who meet certain eligibility requirements. 

Here’s a breakdown of loan forgiveness options to consider: 

• Public Service Loan Forgiveness (PSLF): Specifically designed for those in public service roles, such as teachers, government employees, nurses, doctors, or other medical professionals. After making 120 qualifying payments with an approved repayment plan and while working for an eligible employer full-time, the remainder of your Direct Loans could be forgiven. 
• Teacher Loan Forgiveness: Educators who teach in low-income schools or educational agencies for five complete and consecutive academic years, might be eligible for up to $17,500 in loan forgiveness for Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Federal Stafford Loans. 
• Total and Permanent Disability Discharge: Those who are totally or permanently disabled, and have a Direct Loan, Federal Family Education Loan (FFEL) Program Loan, or Perkins Loans, may be eligible for the Total and Permanent Disability Discharge.   

Selecting the right repayment plan that fits your budget is critical to ensuring you stay on top of payments. You might be surprised by the variety of options available. With plans tailored to different financial situations, finding one that aligns with your current and projected financial status is essential. See the common repayment options below. 

• Standard Repayment Plan: A fixed monthly payment over a 10-year period. This plan ensures your loans are paid off quicker than other repayment options, so you pay the least amount of interest over the life of your loan. 
• Graduated Repayment Plan: Payments start lower and increase every two years. This plan is designed for those expecting their income to rise over time. 
• Extended Repayment Plan: Allows borrowers to pay back their loans over a 25-year period, with either fixed or graduated payments. 
• Income-Driven Repayment Plans: Monthly payments are based on your income and family size. There are several types, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), Income-Contingent Repayment (ICR) Plan, and the Saving on a Valuable Education (SAVE) Plan (formerly known as the REPAYE Plan). 
• Loan Consolidation: Combining multiple federal student loans into one loan, potentially with a lower monthly payment and extended repayment term. 

These options are available whether you’re paying back subsidized or unsubsidized loans. Consulting with your loan servicer can help you make an informed decision about which plan is best suited for your financial situation. You can also check out the Loan Simulator offered on the Studentaid.gov website to find the best student loan repayment strategy for you. 

Learn more with ascent

As you navigate the path of student loan repayment, remember that you’re not alone. Reaching out to your loan servicer should be the first step toward learning about your specific loan details and available options. Still, there are many additional resources to help support your financial wellness.  

At Ascent, we’re dedicated to providing the guidance and support you need to reach your financial goals. Ascent leaders recently hosted a webinar to answer frequently asked questions around federal student loan payments resuming. You can watch the recording now. 

Visit our website or follow us on social media for more helpful tips and resources for students.   

FAQ

How do you know if your student loans are forgiven?

To determine if your student loans have been forgiven, you’ll typically receive a notification from your loan servicer. However, it’s essential to actively monitor your loan account and stay in regular communication with your servicer.  

If you’ve applied for a specific loan forgiveness program, such as the Public Service Loan Forgiveness (PSLF), ensure you meet all the program’s criteria and have submitted the necessary documentation. Regularly checking your loan balance and statements and reaching out to your loan servicer for updates can also help you stay informed about the status of your loan forgiveness. 

What happens if you don’t pay back your student loans?

Failing to pay back student loans can have serious consequences. Initially, you may incur late fees, and your loan will be considered delinquent. If the delinquency continues for 270 days or more, the loan goes into default.  

A loan in default can lead to severe repercussions, including wage garnishment, withholding of tax refunds, and a significant drop in your credit score. This can make it challenging to secure future credit cards, mortgages, or even rental agreements. This is why it’s crucial to communicate with your loan servicer to explore options like deferment, forbearance, or changing your repayment plan if you’re facing financial hardships. 

What is a student loan repayment plan?

A student loan repayment plan outlines how a borrower will pay back their student loans. For federal student loans, several repayment options are available, each designed to cater to different financial situations. These plans can range from the Standard Repayment Plan, which has fixed monthly payments over ten years, to Income-Driven Repayment Plans, where monthly payments are based on your income and family size.