Four steps to take before federal student loan payments restart

Updated 11/23/22

It’s been more than two years since the federal CARES Act went into place, suspending all payments on federal student loans and all accrual of interest. This suspension was supposed to end after December 31, 2022. 

Due to open litigation surrounding the proposed student loan forgiveness program, however, student loan forbearance has been extended again. According to the U.S. Department of Education, "Payments will resume 60 days after the Department is permitted to implement the program or the litigation is resolved, which will give the Supreme Court an opportunity to resolve the case during its current Term. If the program has not been implemented and the litigation has not been resolved by June 30, 2023 – payments will resume 60 days after that." Read the full press release here.

Despite this latest extension, it’s still a good idea to prepare yourself now for the day federal student loan payments are reinstated.

COVID-19 is still ever present and could create further complications in how one might effectively make payments moving forward. Here are a few steps you can take before student loan payments restart.

Revisit Your Budget

If you have received ongoing income during this period, you might have gotten used to the freed-up cash that would normally go toward your student loan payments. Now is a good time to revisit your budget and get back into the habit of viewing it as a monthly payment. For example, you could put the amount you would normally pay towards your student loans into a savings account. If you don’t have a savings account or need to build up the balance, this is the perfect opportunity.

Address Your Default NOW

If you were in default prior to the CARES Act, now is the time to address your default. Remember, the CARES Act itself will not cure your default. Contact the U.S. Department of Education Default Resolution Group at 800.621.3115, and ask them which agency is holding your defaulted student loans. Then call that agency and request one of the following solutions:  

1. Student Loan Rehab: Under a loan rehab agreement, your loan holder will determine a reasonable monthly payment amount that is equal to 15% of your annual discretionary income, with the minimum payment being $5 a month. After nine months, your student loan is brought current. You would not be charged any payments until after payments resume again in 2023. Also, as a bonus, if you were to start this process now, any time would still count towards your nine-month rehab.
2. Default Consolidation: By choosing this route, you agree to make three payments on the defaulted loan before you consolidate it. Your loan holder will determine the required payment amount, but it cannot be more than what is reasonable and affordable based on your overall financial situation.

PLEASE NOTE: you can only use each of these solutions once, thus making these “lifelines.” By addressing your default now, you can avoid any further pitfalls such as future wage garnishment.

Apply for or Recertify Your Income-Driven Repayment Plan

During this period, borrowers are not required to recertify at the original year-end due date, but you will want to recertify before payments begin again in 2023. This is especially a good idea if you have experienced a layoff or furlough or have taken a pay cut during this period. Review the different types of income-driven repayment plans. These are also great ways to avoid going into default, regardless of your situation, since income-driven repayments can be as low as $0.00.

Prior to applying for an income-driven repayment plan, you can get an estimate by using the Student Loan Repayment Estimator.

Ask Your Servicer to Extend the Pause on Your Student Loans

If you are currently working but are still unable to afford the monthly payments on an income-driven repayment plan due to your current financial situation, you might have the option of extending the pause on your student loans after payments resume in 2023. Call your servicer, and ask for either a deferment or a forbearance. Note: there are deferment and forbearance limits for most borrowers; therefore, it’s best to only use them when needed. While your payments will be suspended during this time period, beware that interest will continue to accrue. Federal Student Aid strongly recommends that you put money toward interest during your deferment period.

Learn about the different types of deferment programs as well as eligibility requirements and how to apply.

Bonus Tip: Public Service Loan Forgiveness

For those of you who are eligible for the Public Service Loan Forgiveness (PSLF) Program, here are some things to think about:

1. If you are currently in the program and working on the necessary steps, you will still get credit toward your 120 payments.
2. If you have not applied for the PSLF program, now would be great time to do so. Learn about the PSLF Eligibility Requirements to see if you qualify.

LSS Financial Counseling offers student loan counseling services and can assist you with understanding your repayment options, working payments into your budget and getting back into good standing if you’ve defaulted on a loan. Call 888.577.2227 to schedule a free, confidential phone or virtual appointment.

Author Ray McCoy is a Certified Financial Counselor with LSS Financial Counseling.