Student Loan Payments Are Resuming: Are You Ready?

When Does the Student Loan Payment Pause End?

Student loan payments will resume in October 2023 according to StudentAid.gov. However, interest on student loans will begin accruing again prior to that on Sept. 1, 2023. While the payment pause has been extended several times, this time is final as it went into law as part of recent legislation on the debt ceiling.

How'd it start? Former President Trump first announced the federal student loan repayment pause on March 13, 2020, shortly after he declared a national emergency due to the COVID-19 pandemic. Since then, the payment pause has been extended multiple times by both the Trump and Biden administrations. 

How To Prepare for Student Loan Payments To Resume

There’s been a lot of uncertainty about when student loan payments will resume. But the federal government recent confirmed that payments are set to resume in October 2023.

Here’s what you can do now to ensure you’re ready when payments restart:

• Update your federal Student Aid profile: The world has changed a lot since March 2020, and your life has probably changed, too. This is a good time to log in to StudentAid.gov and make sure all of your contact information is up to date. It’s also a good way to refresh your memory about how much you owe and the name and contact information of your current student loan servicer.

• Check in with your lender or loan service provider: Log in and update your contact information and income information, if necessary. You can also find out important information, like your interest rate, payment plan info, and the amount of your next payment.

• Review your repayment options: Now is also a good time to review your current repayment plan and consider how it compares to your other options. If your income or circumstances have changed in the past few years, or if it’s been a while since you last researched repayment alternatives, a different plan may be a better fit.

What Happens if I Can’t Pay Back My Student Loans? 

Once the payment pause ends, you risk defaulting on your loans if you don’t make your scheduled payments. Default can have serious and long-lasting consequences for your finances. If you can’t afford your payments, you have options available to help you avoid default. For example:

• Choosing a different payment plan, such as an income-driven repayment plan (IDR plan), may lower your monthly payment.

• Applying for a forbearance or deferment may give you a temporary break from payments.

• Consolidating or refinancing your loans may result in a lower payment or interest rate.

• In some cases, you may be able to negotiate a settlement for less than you owe.

The choices available to you depend on your current situation. You must contact your loan servicer to take advantage of these options. 

Even if you default on your loan, you may still be able to rehabilitate your loan to get it out of default status. If your loan was already in default before the payment pause began, the federal Fresh Start program may help you restore it to good standing.

Worried You’ll Never Get Out From Under Your Student Loan Debt? You May Want To Try This

In some cases, you may be able to eliminate your student loan debt by filing bankruptcy. Student loans are a little trickier to erase in bankruptcy than other kinds of debt like credit card debt or medical bills. But new guidelines make this process a little easier if you have Direct federal loans. This means the majority of borrowers since Direct Loans make up almost 90% of all federal student debt. 

To tackle student loans through bankruptcy, you must file an adversary proceeding after you file your bankruptcy case. In the adversary proceeding, you must prove to the court that paying off your loans would cause you undue hardship under a legal standard known as the Brunner test (or the Totality test, in some jurisdictions). 

Upsolve’s comprehensive guide to student loans in bankruptcy can help you determine whether this is a good fit for you. If so, Upsolve may be able to help you prepare the necessary paperwork for free. Check to see if you’re eligible now.

Payment Pause Basics: What You Need To Know

While the payment pause is in place no federal student loan payments are due and no new interest accrues (the interest rate is effectively 0%). Also, lenders can’t take collection action against borrowers, including borrowers whose loans are in default.

The payment pause applies to Direct Loans, including Direct Consolidation Loans and Direct PLUS loans. It also applies to all student loans made and owned by the U.S. Department of Education (ED), including Perkins loans and Federal Family Education Loans (FFEL). FFEL loans may be subsidized and unsubsidized Stafford loans, graduate PLUS loans (loans taken out to pay for graduate or professional school), and parent PLUS loans (loans taken out by a parent to pay for their child or dependent grandchild’s education).

Finally, the payment pause also includes defaulted FFEL or Health Education Assistance Loans (HEAL) that aren’t owned by the ED.

• Loans that entered default status on or after March 13, 2020, are automatically restored to good standing and assigned to the ED. Once these loans become ED-owned, they’ll be eligible for the Biden administration’s proposed one-time debt cancellation (more on that later).

• Loans that entered default status before March 13, 2020, are eligible for the ED’s Fresh Start program, which helps restore defaulted loans to good standing.

The payment pause does not apply to:

• Non-ED-owned FFELs that are not in default

• HEAL program loans that are not in default

• Non-ED-owned Perkins loans (regardless of default status)

• Private student loans not backed by the federal government

Debt Ceiling Legislation and the Payment Pause

Legislators reached an agreement on how to address federal debt to stop the U.S. from surpassing the debt ceiling. The student loan payment pause was addressed in this debt ceiling legislation. As a result, the student loan payment pause will end and student loan repayment will begin in October 2023. Starting Sept. 1, 2023, interest will begin to accrue on student loans again. The interest rate was reduced to 0% as part of the repayment pause, which has saved the average student loan borrower thousands of dollars.

What Is the Biden-Harris Student Loan Forgiveness Plan?

On August 24, 2022, the Biden-Harris administration announced a comprehensive plan to address the nation’s growing student debt crisis. To give you a sense of the extent of that crisis, consider this:

• Americans currently owe more than $1.75 trillion in student loans.

• There are 45 million borrowers, and the average borrower owes almost $40,000 in student debt.

• 93% of all student loan debt comes from federal loans (the remainder comes from private student loans).

Biden’s plan has three separate parts, which would all be implemented at the same time:

1. Keep the payment pause in place for 60 days after the plan takes effect to help ease the transition back to repayment for borrowers and lenders. 

2. Change the current student loan repayment system to make it easier for current and future borrowers to repay their loans.

3. Implement one-time student loan forgiveness for low- and middle-income borrowers.

Biden’s Proposed Changes to Student Loan Repayment, Explained

Student loan debt isn’t the only problem Biden’s plan seeks to address. Biden also wants to streamline student loan repayment moving forward and ensure rules are in place so borrowers have affordable monthly payments. Among other things, the proposed rule changes would:

• Reduce minimum monthly payment amounts. Under the Revised Pay As You Earn (REPAYE) plan, the minimum monthly payment would be $0 for borrowers who earn less than 225% of the federal poverty level. Other borrowers would have their minimum monthly payment cut in half.

• Ensure that interest won’t make repayment impossible. Borrowers who make their monthly payments will never see their loan balance increase due to interest (even if their monthly payment amount is $0).

Biden’s Proposed One-Time Loan Cancellation, Explained

The most controversial part of Biden’s proposed debt relief plan was the one-time forgiveness program for low- and middle-income borrowers. The Supreme Court struck down one-time forgiveness in July 2023.

The Biden plan proposal included a one-time cancellation of up to $20,000 of student debt for borrowers who received a Pell Grant in college, and up to $10,000 for borrowers who never received a Pell Grant. (To see whether you received a Pell Grant, log in to your federal Student Aid account and click “My Aid,” then “Grants.”) 

In addition to having eligible loans, borrowers seeking one-time forgiveness must also have met the following income requirements in either 2020 or 2021:

• If you filed taxes as single or married filing separately, your adjusted gross income (AGI) must be below $125,000. 

• If you filed taxes as head of household or married filing jointly, your AGI must be below $250,000. 

• If you were a dependent and didn’t file your own taxes, you must use your parents’ income. 

Has the Supreme Court Made a Decision on Student Loan Forgiveness? 

Yes. The Supreme Court struck down Biden's proposed one-time student loan forgiveness program.

Here's the history:

Since the White House announced Biden’s student loan forgiveness plan in August 2022, several lawsuits have been filed to block the plan from taking effect. Most of these have been dismissed. Two of the remaining cases are currently pending before the U.S. Supreme Court. 

In very simplified terms, these cases raise two main issues for the court to decide:

• Whether the groups that filed the lawsuits have the right to file them (this is a legal concept known as “standing”)

• Whether the Biden administration has authority to cancel student debt under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act)

On Feb. 28, 2023, the Supreme Court heard oral arguments in both cases. The Court announced its ruling in July 2023. To keep up with the latest developments, subscribe to updates from the Department of Education.