Laurel Road: What Happens When the Payment Pause Ends?

The federal student loan payment pause will soon be a memory, and borrowers are about to embark on a challenging new chapter. Here’s what they need to know.

When Will Payments Resume?

When the Covid-19 pandemic hit in March 2020, the federal government established an emergency forbearance program, which allowed federal student loan recipients to temporarily cease payments and reduced interest rates to 0%.

Lawmakers have extended the deadline for the relief several times under both the Trump and Biden administrations. However, the pause will end this Fall and borrowers can expect interest to resume as of September 2023 and payments to be due starting in October on their federal student loans.

Tips to Prepare

When it comes time to resume making payments, borrowers can avoid financial surprises by planning ahead.

Review Loan Terms

Borrowers should go over the terms and conditions of their loans as soon as possible, including verifying how much they owe, the length of the loan, the interest rate, and the monthly payment amount.

Create a Budget

Another important step is for borrowers to take a deep dive into their current finances and form a budget:

• Realistically gauge income and expenses
• Take into account rising inflation and any other debts
• Incorporate student loan payments
• Identify where any adjustments can be made

Ask Questions Now

Once the payment pause expires, over 40 million Americans will restart their student loan payments–all at the same time. Questions, possible loan term changes, changes to loan servicers, or other concerns may be easier to settle while forbearance is still in effect and fewer people are seeking assistance.

Lower Payments and Loan Forgiveness

Although forbearance is ending, other federal programs and resources are still in place to help qualified borrowers reduce their monthly payments and navigate how to get student loan forgiveness. Here are some highlights:

Income-Driven Repayment Plan (IDR)

IDR plans use the qualifying borrower’s adjusted gross income, rather than the loan amount, to determine monthly payment amounts. There are four main plans to choose from, each with different requirements and advantages. IDR plans generally run for a period of 20 to 25 years, after which any outstanding loan debt may be forgiven.

Public Service Loan Forgiveness (PSLF)

Public Service Loan Forgiveness (PSLF) offers student loan forgiveness to Direct Loan borrowers who work full-time in qualifying public service jobs, make 120 qualifying monthly payments, and meet all program requirements.

Federal Student Loan Consolidation

Combining multiple federal student loans into one Direct Loan works by averaging all the interest rates and rounding up to the nearest one-eighth percent. Consolidating probably won’t lower an interest rate, and it may raise the total amount owed on a loan. But it can lower payments by extending the payment period.