End of an Era: What to Know About Student Loan Payments Resuming

San Francisco, CA — Federal student loan borrowers haven’t been required to make a payment in three years. In March 2020, the U.S. government issued a pause on student loans and lowered all interest rates to 0%. But that’s about to change very soon — because this freeze on payments and interest officially expired on Sept. 1. That means interest has already started accruing again. And in October, payments resume.

What happened to student loan forgiveness?

Let's back up a bit. The Biden administration’s journey toward student loan forgiveness has been all but simple. Parameters have been perpetually changing since their first announcements to dissolve thousands of dollars of debt for the millions of qualifying borrowers. The Supreme Court rejected the president’s proposal in June on the grounds that the administration had "overstepped its authority." So, what now?

While the Supreme Court shot down the president's student loan forgiveness plan, there is progress in providing debt relief. Before the pandemic moratorium expired, the Biden administration launched the Saving on a Valuable Education plan — also known as the SAVE plan.

A quick overview of the SAVE plan

Here's how it works. SAVE is an income-driven repayment plan. Under traditional student loans, borrowers make payments based on how much they owe. But under an IDR plan, they pay based on how much they make.

For those under SAVE, monthly payments vary based on a borrower's discretionary income. And the definition of "discretionary income" is the difference between borrowers' adjusted gross income and 225% of the federal poverty line — that'd be about $32,800 a year for single households in 2023.

Right now for people enrolled in the SAVE plan, their monthly payments are capped at 10% of their discretionary income. But in the summer of 2024, that cap drops to 5% of discretionary income.

Unlike the proposal that was struck down by the Supreme Court, there seems to be very little possibility of cancellation or blocking this plan so far.

All borrowers who are in good financial standing qualify for the new SAVE plan. And since its first announcement, over 4 million borrowers have applied to be included in the new plan. 

Preparing for student loan repayment

Federal student loan repayments are coming up super quickly. And there are several routes that borrowers can follow if they anticipate struggles with repayment in October. 

Consider an income-driven repayment plan 

One way to prepare could be to look further into the SAVE plan to see if it suits an individual's needs. But there are other IDR plans out there besides SAVE. These plans were intended to be helpful for borrowers who are struggling to make their monthly payments. With the IDR, borrowers can instead be charged at a rate that better suits their financial standing.

Contact your loan servicer

Before repayment begins, it may be helpful to call student loan servicers to have a clear idea of the general monthly costs of payment. Additionally, remaining updated on the balance of one’s loans can provide a clearer idea of how to budget for such resumed expenses. 

Consider applying for deferment

For borrowers who anticipate being unable to begin repaying their loans, applying for a deferment plan may be an option. Essentially, those who receive deferment will receive a pause to their repayment for a given period of time. Contacting your loan servicer can clarify if a deferment plan is possible.

Ivelisse Diaz, (she/they) is a college student studying psychology from Oakland, California.

Edited by Amber Ly