How to Prepare to Start Paying Student Loans Again

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published 2 August 2023

If you’re among the millions of borrowers who took advantage of the hiatus on federal student loan payments, it’s time to tighten your belt. With the Supreme Court’s June decision to strike down President Joe Biden’s student loan forgiveness plan — which would have given qualifying borrowers up to $20,000 in federal student debt relief — and repayments beginning in October, you’ll need to make monthly payments again soon.

The thought of parting with that cash might evoke the same sense of dread you felt during your final exams in college. Yet, just as in those college days, the more you prepare, the better off you’ll be.

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In the meantime, there’s a good chance you may not remember who your student loan servicer is or how much you owe. In addition, your home address, e-mail address and bank information may have changed. On top of that, you may have a new loan service provider or platform. More than 17 million accounts for federal student loans have been transferred, and more transfers — either to different servicers or different servicing technology platforms — are expected in the coming months, ultimately reaching more than 30 million accounts, according to a June report from the Consumer Financial Protection Bureau.

Start by logging in to your account at StudentAid.gov to review the list of all your federal loans and get details about them, such as the service provider’s name, how much you’ve paid, and your remaining balance. Make sure your contact information is correct so you’ll receive important notices. You should also go to your service provider’s website to review the financial information there and, if needed, update your personal data.

During the pause in payments, many borrowers used funds previously designated for student loans for other purposes. It’s now time to take a hard look at where your money is going and, if necessary, slash your expenses. Track your spending for a month and scrutinize those numbers, Kantrowitz recommends. Determine what is need-based, or mandatory, and what is want-based, or discretionary. Some of those discretionary purchases may have to go by the wayside so you can afford your loan repayment.

To protect against pay cuts, furloughs and unemployment, federal loan borrowers may want to consider an IDR plan, says Ross Riskin, chief learning officer at the Investments & Wealth Institute. You can adjust your monthly payments — to as little as zero if your income is low enough — without having to go through the arduous process of negotiating with a bank or lender, he says. Income-driven plans have additional benefits, such as potential loan forgiveness after 20 to 25 years of payments. However, you may also end up paying more in interest in the long run.

As you explore repayment options, be wary of any offers to refinance, as the only way to refinance a federal loan is to take out a new private loan to pay off the existing student loan balance, Riskin says. Some private loans have variable interest rates, while federal student loans come with fixed rates. Although a private loan may have a lower rate, you’re likely to lose many of the benefits that come with federal loans, such as the potential for forgiveness or forbearance or the opportunity to use repayment plans based on your income. You’ll also lose the opportunity to obtain loan forgiveness under the Public Service Loan Forgiveness (PSLF) program.

The PSLF program is designed for those who work in public service in federal, state, tribal or local government or for a nonprofit organization. The program forgives the remaining balance on certain loan plans after you’ve made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for an eligible employer. You can determine whether your employer qualifies for PSLF by typing in your organization’s name on the PSLF website.

You must be out of work to qualify for unemployment deferment. You may qualify for economic hardship if you’re receiving federal or state public assistance, you’re a Peace Corps volunteer, you’re working full-time but earn the federal minimum wage or less, or you have income that’s less than or equal to 150% of the poverty line for your family size and state ($29,580 for a two-person household).

Repaying federal student loans may feel stressful, but ignoring your obligation will add even more angst to your life in the long term. If you don’t make payments, the loan will eventually go into default, which can have disastrous consequences. Your credit will be ruined, which will affect all other outstanding debts and make it hard to get any other loans. Worse, your wages can be garnished up to 15%, and if you’re still in default when you retire, your Social Security benefits can be offset up to 15%.

If you were one of the 7 million borrowers in default before the federal loan payment pause, there’s good news for you. A Department of Education program called the Fresh Start initiative will set your loan status as current on payments, restore your eligibility for federal student aid and remove the default from your credit history. Opting in to Fresh Start can have far-reaching positive effects. Your credit score could increase, enabling you to get lower interest rates on a variety of loans, from mortgages to car loans.

Kiplinger contributor Laura Petrecca is a business journalist who has worked at major media organizations such as Gannett, News Corp, and Crain Communications. Prior to launching her own writing business, she held leadership roles such as USA Today’s New York City bureau chief, special projects editor, and business section editor.

In addition to Kiplinger, her writing has appeared in USA Today, Real Simple, Men’s Health, Prevention, Crain’s New York Business, Advertising Age, and AARP Bulletin. Laura also hosts livestream videos and has offered commentary on TV programs such as the Today show, Good Morning America, Inside Edition, Access Hollywood, and CNN.

She earned a master’s degree in journalism and a certificate in economics and business journalism from Columbia University and a bachelor's degree in journalism from the University of Maryland.