Student Loan Interest Starts This Friday
If you’ve been holding off on student loan payments, this Friday, August 1st, interest on those payments will start accruing again.
This means that if you had applied for the SAVE plan, under President Biden, and received a forbearance, it’s now time to start payments again, or you’ll start seeing the interest pile up.
The payments itself are still on hold, for now, because of ongoing legal challenges to the plan.
The U.S. Department of Education is encouraging SAVE borrowers to consider switching to other income-driven repayment plans, such as IBR, or Income-Based Repayment, since the SAVE plan forbearance doesn’t count towards forgiveness in the future.
However, I think it may be wise to just wait and see what happens, especially because under the “One Big Beautiful Bill” (How ridiculous to even have to write that), there’s a new income-based Repayment Assistance Plan (RAP).
It’s expected to be available by July 1st of 202, and it may replace or change the existing IDR options. So, my suggestion is for you to hold tight.
Prepare to start paying though, if you haven’t started already.
Many people may have started paying in May.
That’s because the government began withholding federal tax refunds on borrowers in default. The government may have also started sending out notices to garnish wages.
(Up to 15% of after-tax income can be seized to pay down defaulted student loans.)
270 days or more of non-payment of student loan debt is the threshold for moving from delinquent to default.
Here's what to do if you are behind on federal student loan payments:
Confirm your payment status. All federal loan borrowers have a federal student aid ID number that they can use to check their payment status at the Federal Student Aid website. On that dashboard, they can also see who their loan servicer is (the company the government pays to collect their loans) and should make sure their contact information is updated with them.
In Default? Work with the Default Resolution Group. This is a unit in the Department of Education that is tasked with helping you consider repayment plans to move you out of default.
One option is to repay the entire loan amount immediately. That is likely out of the question for borrowers. The better route is for borrowers to see if they can use the “rehabilitation” program offered by their loan servicer. After a series of 9 or so on-time payments (tied to income), the loan will be lifted out of default status, and the default will be wiped from the borrower’s credit score, which is an important rebuilding step.
Another option is for the borrower to consider loan consolidation, though this route won’t immediately wipe out the default from their credit report.
I was somewhat fortunate, even though my parents didn’t pay for my university. I had a scholarship that didn’t cover everything, and so I still came out of NYU (where I went to school) with about $35,000 of student loan debt. Considering that my salary from my first job out of school was about $20,800 a year, I didn’t know if I was evergoing to pay that loan off. For a long time, I didn’t worry about it. I did an income based repayment, and since my salary was so low, I didn’t have to pay anything. When I started paying, it was a very minimal amount, around $150/month. However, that doesn’t create much of a dent, so when I was in my late 20s, my brother helped me out. He paid off the remaining amount of my student loan, and I paid him back (without interest). It really helped me to get out of that debt a lot sooner. If he hadn’t helped me, who knows if I would still have it for a decade longer.
If you or someone you know is delinquent (behind) on student loan payments, but not yet in default, I’d love to help strategize how you can get back on track, to avoid the financial stress of dealing with default, especially now that the federal government has resumed going after collections. Reach out to me to schedule a strategy session.
With Love & Gratitude,
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