Here’s how to prepare to start paying back your student loans when the freeze ends

On October 1, 2014, students take part in their graduation ceremony at the Hamburg School of Business Administration (HSBA) in Hamburg. Photo by Fabian Bimmer/REUTERS

NEW YORK (AP) — A three-year hiatus on student loan payments will end this summer, regardless of how the Supreme Court rules on the White House plan to forgive billions of dollars in student loan debt.

If Congress approves a debt ceiling deal negotiated by House Speaker Kevin McCarthy and President Joe Biden, payments will resume in late August, ending any lingering hope of further extending the pause begun during the COVID pandemic. Even if the deal falls through, payments will resume 60 days after the Supreme Court decision.

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This verdict is expected before the end of June. Regardless of what the judges decide, more than 40 million borrowers will have to start repaying their loans by the end of the summer at the latest.

Here’s what you need to know to prepare for loan repayments:

How should I prepare for resuming student loan payments?

Betsy Mayotte, president of the Institute of Student Loan Advisors, is urging people not to make payments until the hiatus is over. Instead, she says, put what you would have deposited into a savings account.

“Then you keep the habit of making the payment, but you also earn a little interest,” she said. “There’s no reason to send that money to student loans until the last minute of the 0 percent interest rate.”

Mayotte recommends borrowers use StudentAid.gov’s loan simulator tool or the one on the TISLA website to find a payment plan that best suits their needs. The calculators tell you what your monthly payment would be for each available plan, as well as your long-term costs.

“I really want to emphasize the long term,” Mayotte said.

Sometimes when borrowers find themselves in a financial bind, they choose the option with the lowest monthly rate, which can result in higher costs over the life of the loan, Mayotte said. Rather than “set it and forget it,” she encourages borrowers to reassess their creditworthiness as their financial situation improves.

What is an income-based repayment plan?

An income-related repayment plan sets your monthly student loan payment at an amount you want affordable based on your income and family size. This accounts for different expenses in your budget, and most federal student loans are eligible for at least one of these types of plans.

In general, your payment amount under an income-contingent repayment plan is a percentage of your discretionary income. If your income is low enough, your payment can be as low as $0 per month.

If you are looking to pay off your federal student loan on an income-tested plan, the first step is to fill out an application through the Federal Student Aid website.

Talk to an advisor

Fran Gonzales, 27, lives in Texas and works as a supervisor for a financial institution. She holds $32,000 in public student loans and $40,000 in private student loans. During the pause on her public debt payments, Gonzales said she was able to pay off her credit card debt, buy a new car and pay off two years’ worth of personal loans while saving money. Her private student loan payment was $500 per month, and her public student loan payment will be $350 per month when she restarts.

Gonzales recommends anyone who has student loans speak with a mentor or financial advisor to explore their options and make sure they have an income-based repayment plan.

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You can contact advisors through the Federal Student Aid website, as well as organizations such as the Student Borrower Protection Center and the Institute of Student Loan Advisors.

“I was the first in my family to go to college, and I could have saved money on grants and scholarships if I knew someone who knew about college,” she said. “I could have gone to community college or lived in cheaper housing… It’s a big financial decision.”

Gonzales has a degree in corporate marketing and says she was “awful with finance” until she started working as a loan officer herself.

Gonzales’ mother works in retail and her father works in the airport, she said, and both encouraged her to pursue higher education. For her part, Gonzales is now trying to educate other student borrowers about what they are taking and what their options are.

“I try to educate every young person I meet.”

Can I set up a payment schedule for my student loans?

Yes – payment plans are always available. Still, some proponents advise borrowers to wait for now, as there is no financial penalty for non-payment during the payment and interest accrual pause.

Katherine Welbeck of the Student Borrower Protection Center recommends logging into your account and making sure you know the name of your provider, your due date, and whether you’re enrolled in the best income-based repayment plan.

What if I can’t pay?

If your budget doesn’t allow payments to continue, it’s important to know how to deal with the possibility of student loan default and delinquency. Both can affect your credit rating and result in you not being eligible for additional help.

If you find yourself in a short-term financial quandary, Mayotte says you may be entitled to a deferral or forbearance, which allows you a temporary suspension of payment.

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To find out if deferral or forbearance is a good option for you, you can contact your credit servicer. One thing to note: interest will continue to accrue during the deferral or deferral. Both of these can also affect potential loan forgiveness options. Depending on the circumstances of your deferral or omission, it may make sense to continue paying interest during the suspension.

How can I reduce the cost of paying off my student loan?

• If you sign up for automatic payments, the service provider takes a quarter percent off your interest rate, according to Mayotte.
• Income-based repayment plans aren’t for everyone. However, if you know that you will eventually be eligible for forgiveness under the Public Service Loan Forgiveness program, it makes sense to make the lowest possible monthly payments, since the rest of your debt will be forgiven once the payment decade is complete.
• Reevaluate your monthly student loan repayments during tax season when you already have all the financial information in front of you. “Can you afford to raise it? Or do you have to reduce it?” said Mayotte.
• Split payments in whatever way works best for you. Instead of a large monthly sum, you can also consider two installments per month.

Are student loans forgiven after 10 years?

If you worked for a government agency or nonprofit organization, the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-tested repayment plans forgive the remainder of a borrower’s debt after 20 to 25 years.

Borrowers should ensure they are enrolled in the best possible income-based repayment plan in order to qualify for these programs.

Borrowers who have been scammed by for-profit colleges can also file for a borrower defense and receive exoneration.

These programs are not affected by the Supreme Court decision.