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They're Back: Student Loan Payments Resume & Interest Accrues

by Lawrence Rand | September 1, 2023

After a three-year pause on federal student loan payments, September 1st marked the first significant step toward restarting the process: borrowers will once again see interest accrue on their loan balances.  The milestone comes one month ahead of the next major date for millions of American borrowers: October 1st, when most payments will resume.  Here’s what you need to know:

  • Interest will start accruing. A federal policy that has kept interest rates on student loans frozen at 0% for more than three years is officially ending September 1st.  As of this date, the Department of Education says that borrowers will once again be charged the interest rate they were paying before March 2020.  That means that even though current market rates are historically high, these economic conditions have no impact on most federal student loan interest rates.
     
  • Payments will resume. The pause on payments ends in October, but the exact date that many borrowers will have to start paying off their loans varies based on their loan servicers.  Millions of borrowers will have a different loan servicer – the company or organization handling payments – than they did when the payment pause went into effect in March 2020.  Borrowers can log in to the Federal Student Aid website to find out who is servicing their loans.  They should also check to make sure the servicer has their correct contact information.
     
  • What about automatic payments and income verification? Even if a borrower was enrolled in automatic payments before the pandemic payment pause, they will likely need to reenroll by logging into their servicer’s website.  Autopay is optional, but borrowers will save 0.25% on their interest rate if they choose to enroll.

    Borrowers enrolled in income-driven repayment plans were not required to submit their income information during the pause and won’t have to until March 2024 at the earliest, according to the Department of Education.

    The Biden administration has announced an on-ramp period for the first 12 months of payments resuming.  You will still accrue interest and owe payments as usual, but if you miss any, you can avoid interest capitalization and credit score damage during that period.
     
  • Should I reconsider my repayment plan? If your payments are too expensive, a new income-based repayment option is the Saving on a Valuable Education (SAVE) payment plan, which replaces the Revised Pay as You Earn (REPAYE) plan.

    This plan will at first cap your payments to 10% above the minimum AGI amount (225% of the federal poverty level), but you will pay a lower 5% toward undergraduate debt starting in July 2024. Loan forgiveness happens after 20 years for most borrowers but as few as 10 years of on-time payments if you borrowed $12,000 or less. 

    You will be automatically moved to this plan if you’re currently on REPAYE. Otherwise, you can contact your loan servicer for advice on repayment plans, or you can apply for SAVE on StudentAid.gov.

As always, we're closely monitoring the ever-evolving world of student loans. Make sure to stay plugged into CFO Insights for the latest and most critical updates!

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