Know Your Student Loan Servicer Before Repayment Season Hits

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As the pandemic-related payment pause lifts, federal student loans will resume accruing interest in September after a three-year hiatus at 0% interest. However, for many, restarting monthly payments in October won’t be a simple matter of returning to the status quo. A significant number of college borrowers, especially those who graduated or dropped out in the past few years, have never made a payment and may be unfamiliar with who is servicing their federal student loans.

These borrowers now face the crucial task of paying close attention to the paperwork, emails, and taking proactive steps to ensure a smooth transition as payments restart on more than 40 million federal student loans. This restart is non-negotiable, as it was part of the terms of a debt ceiling bill approved by Congress to prevent a first-ever default. Furthermore, approximately 44% of borrowers will deal with a new student loan servicer, adding an additional layer of complexity to the process.

Federal Student Loan Repayments Resume in October: What You Need to Know

As the pandemic-related payment pause on federal student loans comes to an end, over 40 million borrowers are gearing up to restart their monthly payments in October. However, the process might not be as straightforward as simply resuming payments to the same loan servicer.

Changes in Loan Servicers

Close to 44% of borrowers now have a new student loan servicer, different from the one they had before the COVID-19 pandemic pause started in March 2020, according to student loan expert Mark Kantrowitz. This change could pose challenges for many, especially those who graduated or left college in the past few years and have never made a payment.

Borrowers began receiving emails in late July indicating the name of their new loan servicer. This email, which includes a link to the servicer’s website, is crucial for understanding who will be handling payments. Furthermore, borrowers who had their loans serviced by Great Lakes Higher Education will now have their loans serviced through Nelnet, while those dealing with Navient have been transferred to Aidvantage.

Preparing for Payment Resumption

Rachel Rotunda, director of government relations for the National Association of Student Financial Aid Administrators, advises borrowers not to wait until they receive their bill to start preparing for the payment resumption. Given the simultaneous restart of the repayment system for millions of borrowers, it is crucial to update contact information, evaluate budgets, and select the right repayment plan in advance.

To find out who is servicing your loans, consult the “My Loan Servicers” section on your account dashboard. Registering an online account with the new servicer and signing up for automatic payments are also recommended steps.

The New SAVE Plan

The Biden administration has introduced a new income-driven repayment plan called SAVE, which could benefit over 20 million borrowers. Under SAVE, the payment will be just 10% of disposable income for those who qualify. Furthermore, starting July 1, 2024, borrowers will have to pay just 5% of their discretionary income towards undergraduate student loans.

The Future of Student Loans

While some older loans will be automatically forgiven, most borrowers will need to prepare for the resumption of payments. With the usual interest rate on student loans varying widely depending on when the loan was taken out, it’s crucial for borrowers to understand their individual situations.

While the return of student loan repayments may bring some challenges, being informed and proactive can help borrowers navigate this transition smoothly.

Key Takeaways

The resumption of federal student loan repayments is a significant change for many borrowers. With new loan servicers and repayment plans in play, it’s crucial for borrowers to be proactive, updating their contact information and understanding their repayment options. The new SAVE plan could provide much-needed relief for some, making repayment more manageable. However, understanding one’s individual situation and loan terms is key to making informed decisions about student loan repayments.

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