3 steps to take before federal student loan payments resume this month

A student loan expert explains how to take action now to make potential payments as manageable as possible

This is a guest post from

Sarah Graves, Ph.D.

. She is an English professor and writer who covers creative entrepreneurship, parenting, and education. She's covered student loans for years as both an insider in higher-ed and someone who's been in the financial trenches. You can join the waitlist for her student loan course here, or sign up for her newsletter,

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, where she shares tips to help creatives of all ages do the work they love.

Most of us have gotten used to the absence of student loan payments over the past three years. Unfortunately, the payment pause has officially ended, and many borrowers will again owe payments this month.  

That’s not an easy ask, given the current economic situation of above average inflation and stagnant wages. Few of us have much wiggle room to add another expense. 

Trust me, I get it. As a teacher, I’ve got an expensive advanced degree with a salary that doesn’t match. Thanks to a loophole in the Public Service Loan Forgiveness program (PSLF), I wasn’t previously eligible for cancellation because I’ve spent the past couple of decades working as an adjunct college instructor.

Thankfully, the U.S. Department of Education recently closed that loophole. So, I’m on the verge of getting my six-figure student loan debt forgiven. The day I found out, I legit sat down and cried because it was such a load off.

Of course, only some qualify for special forgiveness programs. But if looming student loan payments are weighing on your mind, there are a few things you can do about it.

Understand your resources

I’m not going to tell you to cut expenses wherever you can or take on five extra side hustles so you can pay off your student loans as quickly as possible. Though getting that debt off your back sooner than later might be a huge relief, that advice isn’t realistic for most people. 

We’re already working to the bone, struggling to keep ourselves and our families afloat. So cutting out one more latte or spending the time we should be with our kids driving an Uber isn’t the answer.

But it is important to know how much you can spare, even if it’s nothing, so you can fully understand your options. 

Take some time to analyze your finances. Given your circumstances, including other expenses and debts, what's a manageable payment amount? What can you spare and still be able to maintain the  standard of living you want?

You might be in repayment for many years or even decades if you enroll in an income-driven repayment plan. So, depending on how close you are to paying off your balance, a short-term sacrifice for a quick payoff might not be in the cards for you. And sacrificing over the long haul is unsustainable. 

Thus, you don’t want to merely think about how much you can spare now but also how much is reasonable to spare monthly for years or decades.

Pick a payment plan

Once you have some numbers, head to the Department of Education’s financial aid website, StudentAid.gov. It has a record of all your federal student loans.

Use the loan simulator

Once you’ve logged in, walk through the prompts on the student loan simulator. It’ll pull up all your federal student loans and give you monthly payments, payoff amounts and the total cost of your loans for all the federal repayment plans. 

This includes the amount of your balance that’ll be forgiven if you enroll in an income-driven repayment plan or qualify for PSLF. You’ll get a complete picture of which repayment plan makes the most sense for you.

Don’t automatically opt for the plan with the lowest monthly payment. Which plan you choose depends entirely on your goals. If you want to pay off your loan the fastest, with the least overall cost, stick with the 10-year Standard Plan. If you do, your loan will cost less over the long term because less interest will accumulate.

If monthly payments on the 10-year plan aren’t in line with your goals, look at income-driven repayment. These plans base your monthly payment on what’s called your “discretionary income.”

Discretionary income isn’t at all what it sounds like. It’s not what you have left after paying all your expenses. In fact, the formula doesn’t take into account your other expenses at all. Instead, it’s the difference between your  adjusted gross income (AGI) and a percentage of the federal poverty line for a family of your size. That percentage varies by plan — ranging from 100% of the federal poverty line on the ICR plan for parent PLUS loans to 225% of the federal poverty line on the new SAVE plan.

Additionally, your monthly payments differ on each plan because there are varying rules on capping payments or accumulating interest.

Consider the SAVE plan

If all these repayment options sound like a mess, there's a good reason. The current mish-mash of income-driven repayment (IDR) plans results from multiple presidential administrations adding their own versions over the years. 

Most borrowers will do best on the newest addition to the income-driven repayment pool, the SAVE (Saving on a Valuable Education) plan. It has the tightest formula for calculating discretionary income, meaning that a much smaller percentage of your AGI is deemed “discretionary.” 

Further, payments are halved for those with solely undergraduate loans. Instead of the standard 10%, your monthly payment is only 5% of your discretionary income. (This part of the plan goes into effect July 2024.)  

The plan isn’t so great if you owe grad school loans, but it’s still a better option than other plans. If you have loans from grad school, you’ll still have to pay 10% on those, just as you would on any other IDR plan, but you won’t have to also pay it on any undergrad loans you still owe. 

Instead, you pay a weighted average of between 5% and 10% depending on the original balances of your undergrad versus grad school loans, and that means if you owe both grad and undergrad loans, the math still works out better than other IDR plans.

Finally, and arguably one of the best aspects of the SAVE plan, you aren’t responsible for paying any interest above your monthly payment, which means you won’t have to deal with negative amortization — what happens when your monthly payment is less than the amount of interest that accumulates on your loan.

Enrollment in an IDR plan means any remaining balance is canceled after 20 years for undergrad loans and 25 years for grad school loans, but that might not be without negative consequences.

Thanks to the American Rescue Plan Act, all student loan forgiveness is tax-free through 2025. But unless that law becomes permanent, most student loan forgiveness (except PSLF) is taxable. The IRS treats the forgiven balance as income and taxes it accordingly. 

If you, as I do, have six-figure student loan debt that balloons into multiple six-figure debt with interest, you could end up paying income tax on several hundred thousand dollars of canceled debt. If you can’t pay that tax bill out of pocket, you could end up owing the IRS for many more years just when you thought you were done with monthly payments.

For this reason, negative amortization has been one of my biggest gripes in covering student loans for the last half-decade. Fortunately, the SAVE plan does away with it entirely. The federal government covers any unpaid interest above your minimum monthly payment.

The SAVE plan has a lot going for it; hence, it’s likely the best option for most borrowers who opt for an income-driven repayment plan. Unfortunately, not all borrowers are eligible. Parent PLUS loan borrowers are still only eligible for the very unfavorable ICR (income contingent repayment) plan.

Investigate forgiveness options

Unfortunately, President Biden’s promised student loan forgiveness was blocked by the U.S. Supreme Court. Though the administration is attempting other avenues for wide scale forgiveness, further actions will likely meet a similar outcome. 

I’m as upset as anyone because my husband, a Pell Grant recipient, stood to have his entire balance wiped out, and now, thanks to the Supreme Court ruling, we’re stuck paying a bill we thought we wouldn’t have.  

But that doesn’t mean there aren’t other options.

Borrower Defense to Repayment

My best friend, who also would have had her balance wiped out with the promised wide scale forgiveness, attended a for-profit school that misrepresented her ability to benefit from the education. Because her school is on a list of those found to have lied to students, her loans were discharged through a program called Borrower Defense to Repayment. All she had to do was apply.

My husband also attended a for-profit school that lied to him. And they did worse than merely misrepresent his ability to benefit. They encouraged him to switch from majoring in computer science to the electrician trade, claiming he’d be able to find far more work. After graduation, he spent years searching for a job as an electrician with no success. 

We actually had to move to another state before he could find work. And now he works in, guess what? — IT (information technology). A degree in computer science could have opened doors that are now closed to him. 

So he’s also attempting Borrower Defense to Repayment. His school isn’t on the list of those for automatic discharge, but it unquestionably lied to him. In fact, it’s no longer in operation thanks to its shady practices. 

His school isn’t on the list, so he must mount a case to get his discharge approved. But it’s worth a shot. And it could be worth a try for you, too, as long as you meet the qualifications.

It’s more likely you’ll qualify for Borrower Defense to Repayment if you attended a for-profit school, as they’re more prone to lying to their students in order to get bodies in the door and money in the bank. However, if your school in any way lied to you or misrepresented your ability to benefit from your education, it’s worth requesting this kind of discharge. 

The temporary payment recount

Although not a forgiveness option per se, it's also worth being aware of the temporary payment recount. 

Student loan servicers who manage the payment collection of federal student loans on behalf of the Department of Education have been mismanaging student loans for decades. This includes incorrectly counting payments and placing borrowers into deferment or forbearance for years instead of doing what would have been more beneficial to borrowers — steering them into income-driven repayment plans.   

As a result, the Department of Education has issued a temporary payment recount, which counts any period spent in repayment, including in deferment or forbearance, toward the total number of required payments for IDR forgiveness.

This is huge for several reasons. First, it corrects a monumental error. And second, everyone benefits, even if you weren’t previously enrolled in IDR. For example, if you’ve spent years in deferment and sign up for an IDR plan now, you can still get those years of deferment counted toward the 20 or 25 years of payments you need to qualify for forgiveness.

Ordinarily, you must make the required minimum payment for your payments to count toward forgiveness, even if your payment is $0. So periods of deferment and forbearance, which temporarily suspend payments, don’t count.

But with the temporary recount, you could be years closer to forgiveness, depending on how many years you spent in deferment or forbearance.

For example, I went to grad school before the Grad PLUS loan, which lets you borrow federal loans up to the total cost of attendance. So, I had to resort to private loans to cover the cost of my doctorate. 

No IDR plan considers private student loan debt in its payment calculation, and, on my meager teacher income, I couldn’t commit to both my private and federal loans at the same time. Because private lenders don’t let you endlessly defer payment, I had to tackle my private student loans first while I deferred the government ones.

But it meant I couldn’t participate in an IDR program while I focused on my private student loans. And that meant I wasn’t working toward cancellation. I was merely postponing my debt. Thanks to the payment recount, I have enough eligible payments to qualify for PSLF right now. 

Whether or not the same is true for you, the payment recount could put you that much closer to forgiveness, whether you’re working toward PSLF or IDR cancellation. 

The recount is automatic; you don’t need to apply for it. But it’s a slow process. Those who are eligible for cancellation now are being recounted first. So, if your payments haven’t been recounted yet, just hang tight. It should be done by sometime in 2024.

What happens if you can’t pay?

You can’t simply stop paying (called a default) on federal student loans forever. You might get away with not paying for a while, but the federal government has extraordinary powers to collect. Unlike a private lender, it can garnish your wages without suing you first.

But that doesn’t mean you’re without options. If none of the monthly payments on any of the federal programs are manageable, you can negotiate a lower payment. I have a social worker friend who couldn’t commit to the payment on any IDR plan. So she called her servicer and agreed to an amount she could pay.

The downside is that if you don’t make the minimum payment on an IDR plan, you can’t qualify for any kind of cancellation. But it could keep you in good graces with the federal government, and sometimes, we all have to do what we have to do.

One-year on-ramp

Through Sep. 30, 2024, the federal government is instituting an on-ramp process to assist those in danger of defaulting on their federal student loans. 

For the next year, if you don’t make your student loan payments, you won’t suffer the consequences of default. Payments are technically still due, interest will still accumulate and your billing statements will note your payment as delinquent. But your wages won’t be garnished, and your delinquency won't be reported to the credit bureaus. 

The bottom line

Not to end on a low note, but if you genuinely can’t pay, you can avoid it — at least for a little while. And there are options to help you tread water for, potentially, as long as you need to. Just be aware of the consequences before you take these options.

But if you can pay even a small amount, look into the SAVE plan. While it’s not perfect, many borrowers will owe very low or even $0 payments, even those with grad school loans, thanks to the new formula for calculating discretionary income. Not to be too corny, but the SAVE plan’s lower payments could help save you from default. And even if your payments are calculated as $0, it all counts in the number of required payments needed for eventual loan cancelation. 

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