Student Loan Payments Resume in October: Here's Everything You Need to Know

Student Loan Payments 

Due to the CARES Act, federal student loans were suspended with a 0% interest rate in March 2020 and have remained in that state ever since. President Joe Biden tried to pursue a $430 billion student loan forgiveness plan, but the Supreme Court halted the plan in June when it ruled in a 6-3 decision that the program was an illegal overreach of executive authority. After that long pause, borrowers will need to resume paying their loans and interest.

As a certified public accountant, you may have some common questions about the process that I can help answer. Here's everything you need to know.

Which loans will be affected?

All federally backed educational loans issued by the U.S. government through the U.S. Department of Education. Loans obtained from private lenders are subject to different repayment terms from those borrowers receive.

What are the types of federally backed student loans?

The most popular federally backed student loan program is the Direct Subsidized Loan, for which the U.S. Department of Education pays the interest as long as the borrower remains in school for at least half the school year, for the first six months after graduation, and during the deferment period (loan payments are postponed). There are also Direct Unsubsidized Loans, in which borrowers are responsible for paying the interest throughout the term. Other student loan options are also available, such as Parent PLUS, Graduate PLUS, and Direct Consolidation programs.

Who offers these loans?

There are currently eight federal student loan servicers:

EdFinancial

MOHELA

Advantage

Nelnet

OSLA Servicing

ECSI

Great Lakes Educational Loan Services

Default Resolution Group

When you receive a federal student loan, it is automatically assigned to one of these servicers. Servicers are allowed to transfer credit accounts between each other.

When will payments resume?

Your first payment is due in October 2023, and you should receive a notification from your lender approximately 21 days before the payment is due. Interest accrual will resume on September 1, 2023.

What if I don't receive a notification?

First, you should contact the previous company that serviced your loan to find out its status and if your loan has been transferred to another servicer. You can also check your loan status on the National Student Loan Data System.

Is there a grace period remaining?

Yes, if you graduated within the last six to nine months, you are still automatically in a grace period.

What repayment options do I have?

There are currently seven options for repaying student loans.

Standard repayment plan: 10-year term with fixed payments.

Graduated repayment plan: 10-year term with low payments at the beginning, then gradually increasing payments.

Extended repayment plan: 25-year term with fixed or phased repayment options.

Savings for Valuable Education (SAVE) plan (formerly known as the Pay As You Earn repayment plan): Repayment is based on 10% of your discretionary income (the amount you have left after paying taxes and personal needs such as food, shelter and clothing), up to no more than what you would pay under a standard repayment plan.

Income-driven repayment plan: A 20-25 year term in which payments are based on 10-15% of discretionary income and the balance is forgiven.

Income-driven repayment plan: The lesser of the two payments: 20% of your discretionary income or the amount you pay over 12 years.

Income-driven repayment plan: Monthly payments for up to 15 years based on annual income.

Can I change my payment plan?

Yes, you can usually change your payment plan at any time for free. To do this, you should contact your credit service provider.

Which payment plan is best for me?

This depends on a variety of factors, including your income, assets, and ability to repay the loan. It's best to consult a financial advisor to get the answer to this question.

What are the interest rates on student loans?

Interest rates vary depending on the type of loan, but currently range from 5.5% to 8.05%.

Loan is forgiven?

The Biden administration has changed the terms of some federally backed student loans through executive orders, resulting in loan forgiveness