By: AnnaMarie Mock, CFP®
Student loan payments resume on October 1st after over three years of forbearance. More than 30 million people are returning with existing loans, and 13 million new borrowers and recent graduates are entering the system for the first time since the Covid-related forbearance.
Regardless of whether everything is appropriately structured for the first federal loan payment, you should still review your student loans to ensure everything is in order and understand your new payment.
Changes to Loan Servicers
The Department of Education (DOE) modified some student loan servicers available, which may impact 4 in 10 borrowers. FedLoan is being transferred to MOHELA. Granite State is now EdFinancial Services. Accounts with Great Lakes Higher Education are being moved to Nelnet. Maximus Federal Services will service Navient borrowers.
Borrowers should receive notices about the changes and steps to take, but you can log into StudentAid.gov to see if any changes have been made. In anticipation of this change, confirm your contact information with the current servicer and download your payment history as a backup. If your servicer does change, your payments will be directed to the new provider.
Outside of getting acclimated with payments restarting, some programs may help your journey of repaying your debt.
On-ramp
In light of student loan cancellation, the DOE is instituting a 12-month auto-enrolled, 'on-ramp' period from October 1, 2023, to September 30, 2024. The 'on-ramp' is designed to ease borrowers back into payments without fear of being delinquent and being reported to credit agencies if payments are missed. However, be cautious; it is not like the last three years because interest will still accrue. Any missed payments are due once the 'on-ramp' ends. For some, this may be an opportunity to catch up on bills and gather some liquidity, but ultimately, treat this as a safety net.
Introduction of SAVE
The SAVE repayment plan is replacing REPAYE. This income-driven repayment plan (IDR) uses income and family size to calculate the monthly payments.
The payment should be lower because the income exemption increases from 150% to 225% of the poverty line, meaning the income threshold is higher. It's based on your discretionary income (the difference between AGI and 225% of the poverty line).
Any remaining interest is eliminated after a scheduled payment, and the loan balance will not grow. For example, if $50 in interest accumulates each month and you have a $30 payment, the remaining $20 would not be charged.
Spousal income is excluded. This income exclusion can significantly reduce monthly payments if your spouse's income is higher or increases the household income past the thresholds.
Only 5% of income will be used for the payment calculation on undergrad loans, down from 10% (available after July 2024).
Consolidation of loans will not restart the progress made towards forgiveness (available after July 2024).
Company Programs to Watch
The SECURE Act 2.0 lets employers treat employees' payments toward student loan debt as if they were 401(k) contributions. Before this change, people often missed out on employer match opportunities because they had to repay their student loans rather than fund their retirement accounts. Additional regulatory guidance is required before 401(k) providers can implement this change in 2024.
The CARES Act started a temporary program through December 2025, allowing employers to provide up to $5,250 in tax-free student loan payments. The tax-free money can be used for tuition reimbursement or student loan repayment. To access this, your employer must have a written plan document and comply with other criteria.
Some companies offer programs designed specifically for their employees. Review the benefit options available during open enrollment (usually around November-December) to ensure you make the most out of what is offered. Some benefits include matching payments to student loans, converting unused vacation days to student loan payments, and offering educational resources.
How Can You Prepare
According to a Transunion study, 53% of Americans with student loans added credit card debt, 36% took out new auto loans, and 15% took out mortgages and unsecured personal loans during the pandemic. Many may have additional debt to manage on top of current expenses and student loans.
Before revisiting the loan repayment options, you need to understand the big picture of your finances and how you can support the payments through a spending plan.
A spending plan is a blueprint for your money and gives you an actionable plan to spend your money intentionally without guilt and fear of overspending. The spending plan is not designed as a strict budget.
To start, you need to determine your annual savings. This should include your yearly employer retirement savings and any savings not being consumed for daily lifestyle expenses. An easy way to categorize the remaining costs is to group them as fixed or discretionary.
Fixed expenses. You must pay these items monthly to maintain your current household, such as your mortgage or rent, car payment, insurance premiums, and utilities. Generally, the amounts will not change on a month-to-month basis.
Discretionary Expenses. The joy of life is doing what you love. Whether traveling, hobbies, or dining out, this section gives you the flexibility to spend on the 'fun stuff.'
If you have money left over each month (surplus), put this towards high-interest rate debt, short-term goal funding, or long-term savings. However, if you have a monthly deficit, you must review your cash flow to evaluate the tradeoffs of your spending habits and plan. Mindful and intentional money habits create awareness of how you think, feel, and act with money, which may make it easier to modify spending as necessary.
Getting Started with Reviewing Your Loans
Confirm contact information in your StudentAid.gov profile.
Create an inventory of your outstanding student loans, including the type, loan servicer, interest rate, repayment plan, balance, and monthly payment.
Contact your servicer to select the best lifestyle plan and help reduce the burden. Review the student loan repayment plans available through StudentAid.gov and look for any relief through company programs.
Different plans are based on the fastest repayment period, lowest monthly payment, and eligibility for loan forgiveness. Consider the monthly payment and the amount of interest being paid over each repayment option.
Sometimes, your balance may increase even though you make payments because your payments do not exceed the interest accruing. This is called negative amortization and can happen on income-driven repayment plans or during periods of deferment and forbearance.
Depending on the repayment plan, there may be opportunities to save on the monthly payments for married couples depending on each spouse's income level and tax filing status, i.e., married filing separate vs. joint.
If your income is adjusted, recertify your income for your monthly repayment to reflect the new amount, especially if your income is lower. This can significantly help your spending plan and cover your bills.
Working With an Expert
Student loans, in general, can be convoluted, but making it work in tandem with your entire financial life can be impossible if you don't know where to start. Rather than relying on a generic approach, work with a financial advisor to analyze your current spending, goals, and overall financial health over time. Remember that every step you take now will help build wealth to achieve financial independence and pay off your debt.
Scam alert! Be cautious of unsolicited calls or emails calling themselves experts promising loan forgiveness or lower payments. Only send money to your servicer and the contact number on your statement.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.