What you should know about repaying your public student loans — Andscape

Starting Sunday, federal student loan borrowers faced a reality few of them have dealt with since early 2020: Repaying their public student loans.

With no mass cancellation on the horizon and payments restarting while credit card debt rises, people juggle paying their mortgage over their loans, all while inflation is still a thing, what are your options? 

When the Biden administration found its student loan repayment plan struck down in the Supreme Court, the Department of Education (DOE) created a new repayment plan for borrowers: the Saving on a Valuable Education (SAVE) Plan. And, yes, loan forgiveness is still possible.

“This new SAVE plan is supposed to cut payments in half for former undergraduate students and bring loan payments to zero for some if they make $15 per hour [or less],” said Jessica Brown, founder of the College Gurl Foundation and author of How to Pay for College When You’re Broke: The Ultimate Guide for Students & Families to Finance a Post-secondary Education. According to StudentAid.gov, payments under the SAVE Plan are 5% of discretionary income for undergraduate loans and 10% of discretionary income for graduate loans or a mixture of the two. In this case, the U.S. Department of Health and Human Services’ poverty guidelines determine discretionary income based on how far one’s income sits above or below the poverty line. The low monthly payments, cap on interest, and forgiveness possible after 10 years (for anyone who owes $12,000 or less) make SAVE attractive if you’re establishing a new normal after more than 36 months.

“The pros of the plan are the cap on payments and affordable monthly interest because interest is really the silent killer,” Brown said, comparing the new plan to the former Revised Pay as You Earn (REPAYE) plan. REPAYE capped monthly payments at 10% of discretionary income for all loans, with forgiveness only possible after 20 or 25 years, regardless of the loan amount. Borrowers participating in REPAYE are now automatically enrolled in SAVE.

Brown, who created her nonprofit to expose minority students to college and to show them how to pay for it, says even before thinking about taking advantage of SAVE or any income-driven repayment plan, such as Pay as You Earn, you need to know all your facts.

“Log in to your account, see how much money you owe, the interest that’s accruing, and begin looking at the options available to you,” Brown said. “Once you start taking steps like that in the beginning, it makes things better for you in the long run. For current borrowers, you don’t want to go into default, because student loans affect your credit score. I remember reading an article about a nurse in Tennessee who defaulted on her student loans. And because of that, the state of Tennessee revoked her nursing license until she got back in good standing. So this is the time to get ahead of all that.”

The income-driven repayment plans are ideally suited for anyone entering or currently enrolled in the Public Service Loan Forgiveness (PSLF) program, which began in 2007. Through the program, current full-time employees of government or nonprofit organizations, including the military, teachers, AmeriCorps or Peace Corps volunteers, will see their loans forgiven after 120 qualifying payments. DOE defines “qualifying” as on-time payments made while employed by an eligible organization.

“If you have a job in public service, read all the requirements for [the program]. Put in an application. Nothing beats a failure but to try. If they deny you, guess what? Try again,” Brown said.

The Student Aid website offers several resources for anyone interested in the public service loan forgiveness program, including a tool that tells you if you work for a qualifying employer, which loans are eligible for forgiveness, and what defines a “qualifying payment.”

But the most important reason for visiting the website that some dreaded returning to or even ignored emails from for three years is also the most basic: verifying your student loan lender. 

“Many lenders have changed since COVID,” Brown said. “Who knew, right? Unless you’re staying on top of this information, and the only way to do that is to log in to the portal and see everything. That also helps when you need to communicate with your servicer. If you know your payment comes out of your account on the 10th of every month but you don’t get paid till the 14th, contact your lender and change the payment date. And give yourself some wiggle room in case the direct deposit doesn’t hit, for example, on a holiday.”

Visiting the site also gives you the chance to update your address. If you moved since the last time you paid your student loan, you must ensure your current information is correct. These factors affect your monthly payments even if you didn’t move but experienced other life changes, such as marriage or divorce. Your job status also needs updating as well. A change in income correlates to your monthly payments. Got a raise or a job that pays more money? Expect a bigger bill. If you lost your job or took a job that pays less, expect a payment decrease. For some, their job status will mean a $0 monthly payment. But this isn’t a deferment. If your job situation improves, your account will reflect that. And the lack of accruing interest means your balance will never increase, even if you’re paying $0 per month.

“If there’s any change in your income, if you unfortunately lost your job, you need that $0 per month payment option. So maintaining open communication with them is important,” Brown said.

Understanding the fine details of every loan plan is just as paramount as ensuring that you cross your t’s and dot your lowercase j’s. Like other income-driven repayment plans, SAVE doesn’t cover every single loan type.

“It’s not necessarily great for parents because the Parent PLUS Loan doesn’t qualify,” said Brown, referring to SAVE. For example, if your parents helped fund your undergraduate education through Parent PLUS Loans, those loans are ineligible for SAVE or any income-driven repayment plan. “The only way those loans become eligible for SAVE is through applying only after loan consolidation,” said Brown.

That reinforces that a repayment method that works for one person may not work for another based on their loans, finances or plans. SAVE and other income-driven repayment methods stretch payments over a more extended period. If you’re close to closing your debt with Uncle Sam, adding several more years, even for a lower monthly amount, might not make sense. Also, note your local tax laws, as some states categorize forgiven debt as taxable income. While the DOE offers an automatic 12-month grace period where it will not report missed payments to credit bureaus, nor will your loans fall into default or deferment, interest will accumulate, and the payments are still due.

The next few months present challenges for borrowers who spent the last few years dreading this inevitable day but hoping against hope that the day might not come. Even if you didn’t make new purchases like a car or a house, creating a sound budget is critical to weathering whatever may come your way. September is over, and as borrowers adjust to their new routine, there are at least several life rafts for anyone who finds themselves underwater or fears they may get in over their head.