Well this is NOT good news for millions of Americans — like ME!!
The moratorium on your student loans is expiring soon, and that means payments may — and should be — resumed.
Since March 20,2020 the office of Federal Student Aid has been providing temporary relief on federal student loans by suspending payments, stopping collection on defaulted loans and charging 0% interest.Yahoo Finance
There have been several extensions, thanks to coronavirus relief, but it’s all coming to an end as of September 20.
That means, on October 1st, payments, interest, and collection on default loans will continue.
If you are like SO MANY Americans, the extension on the moratorium might be ending, but your finances aren’t any better than they were a year ago.
So, What The Heck Do You Do If You Think You Are Unable To Make Payments On Your Student Loans?
Well, you have several options — and options are always good in my book!
One option is, what The Department of Education calls, an income-driven repayment plan — IDR for short.
With this option, they base your monthly payments on how much money you make, thereby HOPEFULLY reducing the monthly amount you owe.
In some cases, that monthly amount could be zero — although it’s important to note that your interest keeps going up.
Based on the type of loan you have, there are four options for IDRs.
Important to note: this only applies to federally owned loans. If your student loans are held by a private company, they have their own contracts with different obligations and punishments/leniencies towards payments.Yahoo Finance
The FIRST IDR is known as the Revised Pay As You Earn Repayment Plan — or REPAYE for short (they LOVE their acronyms).
Only Direct Loans qualify for this type of plan. PLUS, Federal Direct Consolidation containing at least on Federal Parent PLUS loan and FFEL Loans are not eligible.Yahoo Finance
Under the REPAYE plan, they use your discretionary income — that’s the income remaining after taxes, other charges, and expenditures.
The payments to your student loan would be 10% of your discretionary income, divided by 12.
For this type of repayment plan, they take into consideration your adjusted gross income, your family size, and your loan balance.
The SECOND repayment option is Original Pay As You Earn Plan — PAYE for short.
This plan is identical to REPAYE, except in order to qualify you must also be a new borrower as of Oct 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011.Yahoo Finance
The THIRD repayment option is known as the Income-Based Repayment Plan — IBR for short.
Under the IBR plan, repayment would be 15% of your discretionary income, divided by 12.
This repayment amount COULD be 10%, if you are a new borrower on a student loan.
There are some loans that don’t qualify for this repayment plan, including consolidation loans and some Parent PLUS loans.
The LAST option for repayment under an IDR is known as the Income-Contingent Repayment Plan — ICR for short.
Monthly payments in this plan are less than what you would pay on a repayment plan with a fixed monthly plan over 12 years OR 20% of your discretionary income divided by 12.Yahoo Finance
If you have a Parent PLUS Loan, this is good news for you, because this is the ONLY option for repayment under the IDR system for this type of loan.
Now The Bad News — But It’s Very Important!
If you can’t set up a payment plan under ANY of the options and you don’t qualify for a deferment or forbearance, your loan could go into default — and you don’t want to do this.
Y’all, if your loan goes into default, the government can actually garnish your wages — and this is important — they can take any professional licenses you may hold in your name. *YIKES*
They can — and WILL — report you to crediting agencies if you default on a loan, thereby damaging your credit.
Now, I know this is all pretty confusing to navigate.
You can go to the Federal Student Aid website to help determine which repayment option might be best for you.
You can also talk with your lender — they know all the rules and regulations, and might be able to help you make the best repayment decision.
You also want to start this process NOW, because you don’t want to get to September 20th, and not have a plan.