Student Loan Payments Resume in October 2023: Here Are What Borrowers Should Be Aware Of
In about a month, millions of Americans who hold federal student loans will be receiving their first bill after a three-year hiatus. However, the lending landscape has undergone significant changes since before the pandemic, with several key adjustments in place. In this article, we will review four noteworthy changes that you should be aware of.
New Servicer, New Point of Contact
When federal student loan payments resume in October, many borrowers will notice a change in their loan servicer. This shift occurred because several lenders responsible for managing government debt, such as Navient, the Pennsylvania Higher Education Assistance Agency (also known as FedLoan), and Granite State, ceased their operations during the pandemic-induced payment pause.
According to Scott Buchanan, the executive director of the Student Loan Servicing Alliance, affected borrowers will receive emails notifying them of this change, accompanied by detailed instructions.
Kantrowitz, a higher education expert, has been closely tracking these transfers.
Specifically, borrowers previously serviced by FedLoan will now be transferred to MOHELA (Missouri Higher Education Loan Authority). Meanwhile, those who were with Granite State will find themselves under the management of EdFinancial Services.
Nelnet will handle Great Lakes Higher Education accounts, and Navient borrowers will be moved to Maximus Federal Services/Aidvantage. You can verify if your servicer has changed by visiting StudentAid.gov, as suggested by Kantrowitz.
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New Repayment Options
Federal student loan borrowers can now opt for the Biden administration’s newly introduced loan repayment plan, which they may be automatically enrolled in as payments restart in October. The Saving on a Valuable Education (SAVE) plan is expected to benefit up to 20 million individuals by significantly reducing their monthly loan obligations.
Although some of the plan’s benefits will not take full effect until the following summer due to regulatory timelines, it will ultimately reduce monthly payments from 10% of discretionary income to just 5%.
Additionally, the SAVE plan raises the income threshold for payment calculation from 150% of the poverty line to 225%. Consequently, single borrowers earning less than $32,800 or a family of four with an income below $67,500 will no longer have any loan payments when enrolled in this option.
In cases where your student loan servicer cannot process your SAVE plan application by the time payments resume, they should place you in a temporary forbearance. Kantrowitz aptly describes the SAVE plan as exceptionally generous, akin to a post-facto grant for borrowers.
Streamlined Path to Loan Forgiveness
The Biden administration has recently taken significant steps to enhance various loan forgiveness programs offered by the federal government, particularly income-driven repayment plans and Public Service Loan Forgiveness.
The Education Department will ensure that the calculation of payments for income-driven repayment plans is accurate and that borrowers receive the forgiveness of their debt as promised after a specified number of years (usually 20 or 25). Additionally, borrowers may receive credit for periods that were previously ineligible, including months with late payments.
Public Service Loan Forgiveness has been enhanced, and a new tool simplifies the application process for debt cancellation after 10 years of eligible public service work.
Meanwhile, President Joe Biden has expressed his pursuit of alternative avenues for widespread student loan forgiveness following the Supreme Court’s rejection of his initial attempt in June.
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Protection Against Late Penalties
For a full year after the resumption of student loan payments in October, borrowers will be shielded from the harshest consequences of missed payments. This protection includes the prevention of loan defaults, non-reporting of delinquencies to credit agencies, and the absence of late fees, as noted by Kantrowitz.
However, it’s crucial to acknowledge that interest will continue accruing on your debt during this payment pause. Consequently, Kantrowitz strongly recommends that borrowers begin repaying their bills if they are financially capable, as failing to do so could ultimately prove detrimental.
As federal student loan payments recommence, borrowers should anticipate changes in their loan servicer, explore new repayment options, benefit from streamlined paths to loan forgiveness, and rest assured that late penalties will not immediately impact them. Staying informed about these adjustments is essential for effectively managing your student loan obligations.
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