The U.S.A. Education Department has announced that Federal Student Loan borrowers can prepare to resume payments by June 2023. Recently, Miguel Cardona, Education Secretary, stated that loan repayments will resume either 60 days after 30th June 30, 2023, or 2 months after the Supreme Court’s (US) ruling on US President Biden’s student loan forgiveness plan.
Although the exact timeline is uncertain, borrowers can expect to receive monthly bills again around the fall i.e. August or September. By refinancing their student loans, borrowers can potentially reduce the amount of interest they pay. Moreover, they can accelerate the loan repayment process and potentially have more disposable income available in their budget.
According to data from the New York Federal Reserve, during the forbearance period, only about 18% of loan borrowers proceeded with payments. Additionally, the increasing living cost has left several beneficiaries feeling financially insecure compared to their situation in 2021.
5 Ways Federal Student Loan Borrowers Can Prepare to Resume Payments
Here are 5 ways federal student loan borrowers can prepare to resume payments:
Know About Student Loan Servicers and Loan Details
Initially, brush up with loan details. Furthermore, know about the loan servicer. Individuals can obtain this information by using their FSA ID to log into their Federal Student Aid account. Through this portal, they will be able to access their loan information The information includes the loan terms, servicer, and benefits. Additional details include interest rates, which should remain unchanged from their previous servicer. It is advisable to update personal information as necessary and verify the accuracy of the remaining loan amount and payment history by comparing them with credit reports.
Select a Suitable Repayment Option
For individuals who anticipate or currently face challenges in affording their monthly loan payments, it may be beneficial to explore the four income-driven repayments (IDR) plans provided by the US government. IDR plans determine monthly payments based on the family size and income of the borrower. Thereafter, the borrower can complete the application process through the servicer’s website.
In certain circumstances, opting for an income-driven plan can potentially reduce monthly loan payments to $0. Moreover, after making payments for a period ranging from 20 years to 25 years. The duration depends on the specific plan chosen. Any remaining balance can be eligible for forgiveness. To assess the estimated monthly payment across different plan options, individuals can utilize the Education Department’s loan simulator.
Check Eligibility Criteria for Loan Forgiveness
According to the US Education Department, nearly 3.6 million borrowers might receive a credit of a minimum of three years towards loan forgiveness. Furthermore, around 40,000 beneficiaries will have their federal loans fully forgiven through the waiver program. For most borrowers, the forgiveness procedure is automatic, and their payment counts will be updated in 2024. The US Department of Education assures that borrowers will be contacted by their loan servicer once their accounts have been adjusted accordingly.
Prepare Budget then Start Monthly Payments
Borrowers who anticipate paying off their entire balance are advised to prioritise making or continuing payments before the resumption of repayment. They will benefit from the current 0% interest rate. It is recommended that such borrowers make this a preference. Moreover, individuals who are yet to start tracking their expenses must develop the habit of planning.
Opt for Fresh Start Program, If Payment has Defaulted
Prior to the start of the forbearance in March 2020, approximately 8 million borrowers were defaulters. Once loan payments restart in the fall, these borrowers have an exceptional opportunity through the Fresh Start program. This program offers a singular window that transfers loans from default resolution to a loan service provider. This action reinstates borrowers to “in repayment” status and eliminates the default status from their credit history. Furthermore, borrowers have the freedom to select their preferred repayment plan. Additional benefits include eligibility for another federal student assistance and potential options for long-term federal loan forgiveness.
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