Student Loan Repayments Could Start Soon. Here’s How To Prepare
Borrowers may have to start repaying their student loans soon. The Supreme Court could announce its decision on the Biden administration's sweeping student loan forgiveness plan any day. The US Department Of Education has asked borrowers to be prepared, as the repayments will resume within 60 days, or by the end of August. "The most likely scenario is repayment restarts in September," said higher education expert Mark Kantrowitz. Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers said that lenders are all set to prepare for the bills to restart in September.
Biden administration has extended the pandemic-era payment pause on federal student loans several times and many are saying that this will soon come to an end as the emergencies have also ended. While getting into the routine of paying around $400 a month can be difficult, here are some steps you can take to make the repayment process smoother.
Connecting With Your Servicer Can Help
During the Covid-19 pandemic, several companies that service student loans announced that they would no longer lend money. So many of the borrowers will have to adjust to a new servicer when payments resume in August. As a result, almost 16 million borrowers will have to choose a different company. Check with your servicer to see if they still have your contact information so that any kind of intimation reaches you.
Find an Affordable and Suitable Repayment Option
Many things have changed since the pandemic and so have the laws. Student loan forgiveness is tax-free until 2025 because of a provision included in the $1.9 trillion federal Coronavirus stimulus package signed by President Joe Biden, as per CNBC. This may make things smoother for income-driven repayment plans as they often come with lower monthly bills allowing borrowers to avoid a massive tax bill at the end of the stimulus package signed into law in March 2021.
Back-Up Plan If There's No Repayment Plan In Place
You can always put in requests for economic hardships and unemployment deferment as pointed out by experts.
Repayment Plans
There are four types of federal student loan repayment schemes to choose from. You can asses and choose from these options, depending on your goals.
Standard Repayment: This lasts 10 years and is the best one to pay less interest over time.
Income-Driven repayment- IDR lets you pay a portion of your income and extend the length of time you're in repayment to 20 or 25 years. When this period is over one can get income-driven loan forgiveness for the remaining debt.
Extended repayment- It starts low and then gradually increases every two years for a total of 25 years.
Which Is the Best Repayment Option?
Well, if you want to save on interest and pay off your loans faster then the standard repayment option is the best. Also, you are automatically placed in the standard plan when you enter repayment. If you want to lower monthly payments then IDR is the plan for you. These options are best if your income is too low to afford a standard payment. You can always apply for IDR with your federal student loan servicer at studentaid.gov.