Preparing for Federal Student Loan Payments to Resume

*This post has been updated to reflect the temporary relief extension until 6/30/2023.

The temporary student loan relief that has paused federal student loan payments since March 2020 has been extended again and won’t expire until June 30th, 2023. Payments will be resuming for all borrowers in July 2023. Make sure you have a plan for your loans when the temporary relief ends. Below you’ll find options for many borrower situations.

My federal student loans are in default.

• Previous collections activities will begin again in July. like wage garnishment, tax refund interception, and credit reporting.
• Rehabilitation and consolidation are the two options for getting your federal student loans out of default. You can read more about How to Fix Defaulted Student Loans  and how to get your student loans out of default.
• Once you’ve entered into a rehabilitation agreement you will need to make nine months of on time payments. The temporary relief pauses your Direct Loan payments through June 30th, 2023. That means after you initiate rehabilitation you can satisfy monthly payments without having to pay until May and then will start making payments according to your income.
• If you choose consolidation, your student loans will be in good standing after three months of on time payments. However, you can’t consolidate loans that currently have wages being garnished so if you’re going to go this route be sure to do it before garnishment starts again in September.
• Once your loans are in good standing, you’ll need to continue making on-time monthly payments until your loans are paid off. If you’re struggling to afford payments, an income-driven repayment plan can be your best option. After your loans are back in good standing you can choose from any of the federal student loan repayment plans. The extended repayment plan may have lower monthly payments, but keep in mind it doesn’t qualify for IDLF or PSLF and stretches repayment out for up to 30 years.

I’m working toward federal student loan forgiveness.

• Don’t make any loan payments during the administrative forbearance. You don’t have to make any monthly payments through June 30th, 2022.
• All the months of non-payment during the temporary pause will count toward the required number of payments. So if you’re pursuing Public Service Loan Forgiveness (PSLF) or Income-Driven Loan Forgiveness (IDLF) you made 39 payments during this period of relief (March 2020 -June 2023).
• If you have been told in the past that you didn’t qualify for PSLF because you had FFEL loans or weren’t on the right repayment plan, take another look. The one time account adjustment counts any payments on federal student loans while you worked for a qualifying employer. But this is only for a limited time and you need to take action before 05/01/2023. Read Account Adjustments Bring You Closer to Student Loan Forgiveness to learn more.

I’m struggling financially and student loan payments will be a big burden.

• Take advantage of not having to make payments to your federal student loans through June 30th, 2023. Department of Education owned loans aren’t accruing interest right now so although your loan balance won’t be going down, it also won’t increase.
• Consider an income-driven repayment plan. Income-driven payment plans can be as low as $0/month depending on your income. This can be a good option for maintaining good credit and avoiding delinquency and default. Any repayment plan that lowers your monthly payment means you will pay more interest in the long run and it will take significantly longer to repay your student loan debt. Income-driven repayment plans can help you qualify for PSLF if you work in eligible employment or possibly IDLF if you have a remaining balance to be forgiven after 20-25 years of payments.
• The extended repayment plan also offers low monthly payments. Sometimes monthly payments on the extended repayment plan are lower than an income-driven repayment plan. Keep in mind the extended repayment plan doesn’t qualify for IDLF or PSLF so you could be committing to 30 years of student loan payments.

I can afford payments and I want to pay my loans off ASAP.

• Making payments during the payment pause can help pay your loans off even faster. As long as you’re not pursuing loan forgiveness and your financial position is strong, taking advantage of the 0% interest rate on Department of Education owned loans means your payments will be going to principal and paying down your balance even faster.
• Be cautious about refinancing even after payments resume and interest is no longer 0% on federal loans. you definitely can’t beat 0% on federal loans through June 30th, 2023. You can consider refinancing any federal student loans after the temporary relief expires in June. Keep in mind refinanced loans are forever privatized and lose federal loan benefits. That means they will never qualify for the three federal loan forgiveness programs. If a new broad loan forgiveness program arises that forgives a fixed amount of debt (like the $10,000 forgiveness previously discussed) this almost certainly doesn’t apply to private (including refinanced) loans.
• Private loans don’t have the same benefits as federal loans, so refinancing them can really lower high interest rates. There isn’t much of a downside to refinancing private student loans to get a lower interest rate. Private loans already don’t have eligibility for the federal loan forgiveness programs so you won’t be missing out on that possibility. They likely wouldn’t be included in any new student loan forgiveness legislation or executive orders.

Helpful Links

Coach Q&A: What is Income-Driven Loan Forgiveness?

Coach Q&A: Public Service Loan Forgiveness Pitfalls

Federal Student Aid Coronavirus Information for Students, Borrowers, and Parents