To say it's been a confusing year for student loan borrowers would be an understatement. With two student loan debt relief programs tied up in the courts and a new administration taking office soon, you may feel uncertain about what lies ahead for your loans.
Having worked as a student loan expert for over 15 years, I've witnessed my fair share of student loan program changes. However, I've never been through a period more complicated and tumultuous than the policy tug-of-war we've seen over the past few years.
So, how can you approach your student loan repayment strategy with so many factors up in the air?
Here are six steps that can help you regain control of your student loans.
💻 1. Check your student loan balance
Do you know how much you owe in total on your student loans? You might have an idea (or think you do), but it's important to check.
Many borrowers I've worked with are surprised to find they owe more than they initially borrowed when it's time to start repayment. This is because most loans, except subsidized ones, begin accruing interest from the moment they are disbursed. Outstanding interest, which has not been capitalized or added to your loan, is listed separately from the principal balance. To fully understand your loan balance, it's important to carefully review your statements.
If you know who your student loan servicer is, you can log into your online account to check your balance. If you're not sure, you can find out by logging into your Federal Student Aid account and visiting the My Aid page.
Read more: 5 Ways to Pay Off Your Student Loans Even Faster
🗓️ 2. Plan to restart payments
If you are enrolled in the Saving on a Valuable Education Plan, your loans have been in an administrative forbearance since this summer due to the plan's legal challenges. You haven't been able to make payments, and your interest rate has been set to zero. This payment hold is temporary, and I expect it to end soon.
If you haven't done so already, reevaluate your monthly budget to accommodate your student loan payments.
Read more: Stay With SAVE for Student Loan Forgiveness, Experts Say -- With 4 Exceptions
💰3. Review other income-driven repayment plans
If you're worried about SAVE disappearing or looking to adjust your budget to include your monthly loan payments, it's a good idea to explore all available repayment plans. You can use the US Department of Education's Loan Simulator to estimate your payments and check eligibility for specific plans. This tool will let you explore available payment options such as the Income-Based Repayment plan.
As of last July, the Pay as You Earn (PAYE) plan has been closed to new applicants. Additionally, the Income-Contingent Repayment (ICR) plan is now only available to borrowers who consolidated a Parent Plus Loan into a Direct Consolidation Loan.
The department is working to restore the two IDR plans previously phased out, and I expect PAYE and ICR to return in the next few weeks. If you're interested in exploring either, check for updates on the Federal Student Aid website after Dec. 16.
👩🏫 4. Look into the PSLF buyback program
The Public Service Loan Forgiveness program offers debt cancellation for teachers, nurses and other public service employees who work in a qualifying job for 10 years and make 120 payments on their loans. If you're enrolled in SAVE and were close to reaching your 120 total payments, the recent payment pause may have delayed your forgiveness. In this case, you might benefit from the PSLF buyback program.
The PSLF buyback program lets you "buy back" months where your loans sat on hold during a forbearance period -- but only if doing so brings you to 120 total payments.
For example, let's say you had already made 115 qualifying payments before your loan entered the SAVE Plan forbearance. You could apply for the PSLF buyback program to buy back five of the months where your loans were in forbearance to reach the 120-payment requirement. You'll apply for the program online, and once approved, you'll have 90 days to pay off what you owe for the number of months you buy back. So, if your monthly payment was $100, you'd need to pay $500 to receive forgiveness.
You'll need to also make sure you meet all other PSLF eligibility criteria, such as working for a qualifying employer and having the correct loan type. If you think you're eligible and want to confirm your payment count, you can find qualifying payment amounts in your StudentAid.gov account.
🎓 5. Take action while you're still in school
If you're still in college, your student loans likely haven't entered repayment yet. While it's difficult to predict what repayment options will be available in the future, there are proactive steps you can take now.
One recommendation is to pay off any interest that accrues while you're still in school. Even small contributions can help reduce the overall cost of your loans in the long run.
If your federal student loan hasn't yet entered repayment, you won't be eligible to enroll in a repayment plan yet. Repayment starts six months after graduation or if your enrollment drops below half-time, unless you enroll in another program, like graduate school, before the grace period ends.
❌ 6. Don't bake forgiveness into your repayment strategy
Many borrowers have turned to income-driven repayment plans to reduce their monthly payments and potentially qualify for student loan forgiveness. However, forgiveness is not guaranteed, especially as legal challenges continue to threaten the plans proposed by the Biden administration. Programs like PSLF and forgiveness under the Income-Based Repayment Plan carry less risk, since they would require congressional action to be altered or eliminated.
That said, it's always wise to plan for full repayment of your student loans, regardless of any current potential forgiveness opportunities.
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