2 new options for federal student loan borrowers
NORTH TEXAS (CBSNewsTexas.com) — For the first time in more than three years, federal student loan borrowers have to make payments again.
At the start of the COVID-19 pandemic, these payments were paused. Also put on hold—interest accrual on these loans. But that interest started building in September and payments started up again this month.
This is going to change the way millions of borrowers live their daily lives. More than half say they'll be forced to choose between making their loan payments or buying things like groceries and paying rent, according to a Credit Karma survey.
If you have federal student debt and you're concerned about how you're going to make payments, there are a couple of things to know.
On-ramp period
The Biden administration has created something known as an on-ramp period for repayments. This is basically a one-year grace period.
Here's what typically happens when you skip monthly payments: your credit takes a hit, your loans are sent to collections agencies and they're listed as being in default.
From now until Sept. 30, 2024, that won't happen. But interest will continue to accrue on your loans, so you'll end up owing more down the line.
To calculate loan interest, use this formula:
Interest amount = (Outstanding principal balance x Interest rate factor) x Number of days since last payment
SAVE plan
There's also a new income-based payment plan called the SAVE plan. Under this plan, your monthly payments could be cut in half or even go down to $0/month for some borrowers.
There are other income-based repayment plans available. The best way to know your best option is to talk to your student loan service provider.