What to do if you can’t afford to pay your student loans when payments resume

The U.S. Supreme Court ruled on Friday that the Biden administration could not proceed with plans to forgive student-loan debt. So after a three-year freeze on payments, the federal government will turn payments back on, and borrowers will have to start repaying their loans again.

This is the ninth time the government has said that borrowers will have to repay their debt, so it’s not clear whether the end of the pause is set in stone. But in any case, a deadline has been set for loans to start accruing interest again in September and for payments to start in October.

“We will … be in direct touch with borrowers and ramping up our communications with servicers well before repayment resumes to ensure borrowers and their families are receiving accurate and timely information about the return to repayment,” a spokesman for the Education Department told MarketWatch.

The end of the pause has got Wall Street worried there could be a surge in loan delinquencies, as consumers struggle to pay back auto loans, credit-card debt and personal-loan debt on top of student loans.

There are a range of estimates on how much student-loan borrowers typically pay each month on their loans. According to Bank of America data, $180 was the median monthly student-loan payment as of January 2020. Federal Reserve research before the payment pause said the average monthly payment was $393, while the median payment was $222.

MarketWatch spoke to experts ahead of the payment resumption about the options borrowers can pursue to help alleviate the burden of payments resuming.

1. Look at income-based repayment plans.

Look into getting into an income-driven repayment plan to lower your payments, the CFPB said. Income-driven repayment plans for federal student loans bring the monthly bill for borrowers to an amount that will be affordable to them based on their income and family size, according to the Education Department. 

“You do not have to call your servicer, you do not have to wait until you get your first bill,” a CFPB spokesperson told MarketWatch. To apply for an IDR program, a borrower can go to studentaid.gov and sign in to submit an application, the CFPB spokesperson said. It’s not necessary to call anyone, and borrowers also don’t need to wait for payments to start before doing so. 

See also: After Supreme Court ruling, a warning: Missing just one student-debt payment can hurt your credit score

Borrowers can use the Loan Simulator on the Department of Education’s website to compare their payment options, said Betsy Mayotte, the president of the Institute for Student Loan Advisors, a nonprofit that helps borrowers manage their student loans. Her organization’s website also offers a tool for borrowers to get a sense of what they would pay under different payment plans, Mayotte said.  

“Borrowers can do a lot of self-help these days because of the various tools that are available online,” she said. 

If you find an income-driven repayment plan, or a program that ties your loan payment to your income and not your balance, you can also apply for the plan online on your servicer’s website, Mayotte said. 

“If the borrower is eligible for the plan the servicer can’t deny them and if they submit the application they’ll be approved for it,” she said.  

2. Think twice about asking for forbearance.

Before asking a student-loan servicer for forbearance — meaning a temporary pause on making payments — consider an income-driven repayment plan first, the CFPB advised.

“If the first thing that’s offered is forbearance the borrower should ask if there are other alternative options for them other than a forbearance or a deferment,” Mayotte said. 

Forbearance allows a borrower to temporarily stop making payments, but interest still accrues on your student loan. 

An IDR doesn’t accrue interest, in contrast. But the borrower must pay their monthly bill, unless they make less than around $30,600 individually or $62,400 as a family of four, in which case they will only have to pay $0 a month.

In addition, the federal student loan program offers borrowers the ability to have the remainder of their debt forgiven after spending a certain amount of time in repayment under various programs such as the Public Service Loan Forgiveness program and income-driven repayment plans.

In most cases, the months spent in deferment or forbearance don’t count towards the number of payments that are needed to qualify to have the remaining debt discharged through these initiatives. 

But if borrowers don’t see a benefit from IDR and have a short-term cash flow problem, such as being laid off from their job, then they can consider forbearance after weighing the costs carefully, experts told MarketWatch.

3. Be very, very wary of potential scam artists.

The CFPB said it’s anticipating an uptick in scams targeting student-loan borrowers. Every time the government has announced plans to restart student-loan payments, there’s been an increase in scams, the CFPB said. 

Scammers may ask a borrower to pay up-front fees to get help with their loans, or promise student-loan forgiveness or debt cancellation. They could even ask for a borrower’s Federal Student Aid information. Be aware, the CFPB said in a blog post published in May.

Over the three years that payments were paused, several student-loan servicers that people may be familiar with — from Navient to the Pennsylvania Higher Education Assistance Agency, or FedLoan — have stopped servicing loans, which means millions of borrowers will hear from a new company.

Borrowers should be careful with calls or text messages they receive that talk about payments.  Borrowers should also be aware that they will get a billing statement via email or physical mail at least 21 days before payments are scheduled to resume.

Technically, borrowers shouldn’t be hearing from debt collectors or people asking for overdue payments until they are delinquent on their loans. 

And if they do get calls from debt collectors, that will probably be well into 2024. The government has finalized a provision that offers a grace period for borrowers who can’t repay, so non-payments — or delinquencies — may not be reported to credit bureaus when they are 90 days past due, according to Politico. 

In other words, borrowers who fall behind on paying back their student loans may not see their credit scores dinged until 2024, according to the Politico report. And borrowers who default on their debt may not see debt collectors come after them, or have their wages garnished, until well after that.

So if borrowers hear from a student-loan servicer in any form (email, phone, or text), they should look for the name of the servicer. If they don’t see something they recognize, they should hang up or stop communicating. 

The CFPB advised borrowers to use the official studentaid.gov website to figure out what they need to do with their student loans, and reach out to their servicer through that platform. 

4. If you need help, look online. Then, pick up the phone. 

Most borrowers should be able to apply for repayment programs or look for information online.

But not everyone is savvy with the internet. For those who prefer the phone to communicate, or ask questions, be warned: There may be long wait times. And at the end of the call, you may end up having to apply for something online anyway.

Nonetheless, borrowers who prefer talking through their options on the phone can call their servicer and run through what they might pay under various plans, Mayotte said. 

If they find a plan they like online, but want to go through the enrollment process over the phone with their servicer, Mayotte suggests using language like: 

“I was looking at lower payment options and I thought plan X might work best for me. How can I move forward with it?”

See also: ‘This fight is not over’: Advocates push Biden to use other tools to cancel student debt