NEW YORK (AP) — A three-year pause on federal student loan payments will soon end regardless of how the Supreme Court rules this week on a White House plan to forgive billions of dollars in student loan debt.
The conservative-leaning court seems poised to strike down President Joe Biden’s plan, which would erase $10,000 in federal student loan debt for those with incomes below $125,000 a year or households that earn less than $250,000. He also wants to cancel an additional $10,000 for those who received federal Pell Grants to attend college.
Payments that were paused because of COVID will resume in the fall no matter what, but an estimated 43 million borrowers could see their balances decreased or erased altogether if the court decides the plan can go ahead.
Student loan interest will start accruing on September 1 and payments will re-start in October.
Here’s what to know to get ready to start paying back loans:
HOW SHOULD I PREPARE FOR STUDENT LOAN PAYMENTS TO RESTART?
Betsy Mayotte, President of the Institute of Student Loan Advisors, encourages people not to make any payments until the pause has ended. Instead, she says, put what you would have paid into a savings account.
“Then you’ve maintained the habit of making the payment, but (you’re) earning a little bit of interest as well,” she said. “There’s no reason to send that money to the student loans until the last minute of the 0% interest rate.”
Mayotte recommends borrowers use the loan-simulator tool at StudentAid.gov or the one on TISLA’s website to find a payment plan that best fits their needs. The calculators tell you what your monthly payment would be under each available plan, as well as your long-term costs.
“I really want to emphasize the long-term,” Mayotte said.
Sometimes, when borrowers are in a financial bind, they’ll choose the option with the lowest monthly payment, which can cost more over the life of the loan, Mayotte said. Rather than “setting it and forgetting it,” she encourages borrowers to reevaluate when their financial situation improves.
WHAT’S AN INCOME-DRIVEN REPAYMENT PLAN?
An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. It takes into account different expenses in your budget, and most federal student loans are eligible for at least one of these types of plans.
Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. If your income is low enough, your payment could be as low as $0 per month.
If you’d like to repay your federal student loans under an income-driven plan, the first step is to fill out an application through the Federal Student Aid website.
