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Student loan repayments: What’s happening, and what you need to know.

There are a few things in life that are certain: death and taxes. For many in the past, we could add student loan payments to that list. However, as of July 2023, the Department of Education will begin notifying more than 804,000 borrowers that they have a total of $39 billion in Federal student loans that will be automatically discharged in the coming weeks. In total, the Biden-Harris Administration has approved more than $116.6 billion in student loan forgiveness for more than 3.4 million borrowers.

And, more recently, the Biden administration launched a website to help you compare the four different income-driven repayment plans available, make changes to your current repayment plan or apply for the one that is best for your situation. This site was launched after the Supreme Court struck down the Administration’s debt forgiveness initiative in June. The plans are a significant change to the system, and one or more of the plans that could lower your monthly payments or reduce the amount you pay back over the lifetime of your loan.

So what does this mean for you? It’s important to understand these changes and take necessary steps to prepare for upcoming repayments — or loan forgiveness — so you can navigate the process smoothly.

What’s changing?

After a three-year pause on student loan payments, federal student loan bills will restart in October, which will require more than 40 million borrowers to resume payments on their student loans. During the forbearance period, interest on student loans was paused, providing borrowers with some relief. However, after the expiration of forbearance, interest accrual will resume. It’s essential to review your loan terms and understand how interest will impact your repayment amount.

In the agreement to the debt ceiling that President Joe Biden signed into law, there’s a provision that officially terminates this pause on student loan payments. According to CNBC, the Biden administration has been working to overhaul the federal student loan system, meaning borrowers might notice some changes this fall.

Understand your student loan repayment options.

The standard repayment plan is the default option for federal student loan repayment. It involves fixed monthly payments over a period of time. If you can comfortably manage the monthly payments without financial strain, this might be a good option for you.

Income-driven repayment plans provide flexibility based on your income and family size. Research and determine which income-driven repayment plans align with your financial circumstances and long-term goals.

These plans include:

  • Income-based Repayment (IBR): Monthly payments are capped at a percentage of your income, usually around 10–15%. Loan forgiveness may be available after 20–25 years of qualified payments, depending on how much you borrowed.

  • Pay As You Earn (PAYE): Monthly payments are capped at 10% of your discretionary income. Loan forgiveness may be available after 20 years of qualified payments.

  • Saving on a Valuable Education (SAVE): This newest plan has multiple new benefits for borrowers. SAVE calculates your monthly payment amount based on your income and family size. It increases the income exemption from 150% to 225% of the poverty line, eliminates 100% of remaining interest for both subsidized and unsubsidized loans after a scheduled payment is made under the plan, and excludes spousal income for borrowers who are married and file separately. These changes go into effect mid-2023, with additional benefits to come in 2024. To apply for the SAVE plan, use the IDR application and select the option for your loan servicer to put you on the lowest monthly payment plan.

  • Revised Pay As You Earn (REPAYE): The REPAYE plan is being replaced by the SAVE plan. If you have already enrolled in the REPAYE plan or recently applied, you will automatically be put on the SAVE plan. There is no need to reapply or request to change your plan.

Preparing for student loan repayments.

According to the Consumer Financial Protection Bureau, more than one-in-thirteen student loan borrowers are currently behind on their payment obligations, and about one-in-five borrowers have risk factors that suggest they could struggle when scheduled payments resume. If you fall within this category, it’s especially important to understand what you can afford and plan accordingly before the repayments resume in October.

Start by evaluating your current financial situation and budget to determine the amount you can comfortably allocate toward student loan repayments. This will help you make informed decisions when selecting a repayment plan and managing your monthly payments.

If you work in qualified a public service or nonprofit organization, consider exploring loan forgiveness options such as Public Service Loan Forgiveness (PSLF). This program helps borrowers who have worked in public service for 10 years or more by canceling student loan debt. The public service loan forgiveness time-limited changes expired October of 2022, but borrowers who work in public service can still apply for forgiveness.

It's also important to make sure your contact information is updated — and that you know who your current loan servicer is. Many federal loans were transferred to a different company. The Consumer Financial Protection Bureau (CFPB) estimates that as many as 40% of student borrowers will resume loan payments with a different servicer than they had at the start of the pandemic payment pause. If this applies to you, understanding the ins and outs of your new servicer will help you stay organized and on top of your new repayment plan. Ensure your loan servicer has your current contact information, including your email address and phone number. That way you can stay updated on any changes or important communications regarding your loan repayment.

Moving forward.

As the temporary relief measures come to an end, borrowers must prepare for the resumption of federal student loan repayments. Familiarize yourself with the repayment plan options, understand the impact of interest accrual, and asses your financial situation to choose the repayment plan that works best for you. Stay informed, explore loan forgiveness opportunities and maintain open communication with your loan servicer to navigate the post-COVID-19 forgiveness period successfully.

Navigating student loan repayment forgiveness requires careful consideration of the available options, and it’s important to take time to assess your financial situation and explore information and resources available to you. Progress is made step-by-step, and even small steps toward managing your student loan repayments can make a significant difference in the long run.

Remember, you’re not alone in this journey. Many others are going through similar experiences, and support networks are available to help you make informed decisions. Commerce Bank can help point you in the right direction to get started.

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