Student Loan Moratorium is Set to Expire Soon – Here’s What to Do If You’re Worried You Can’t Pay

Statement for a Student Loan on a desktop.
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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. Through several extensions by way of the Coronavirus Aid, Relief and Economic Security Act, these privileges have been extended until at least September 20.

See: How To Refinance Your Student Loans
Find: The College Student’s Guide to Smart Student Loan Borrowing

Although the assistance will be coming to an end, the financial struggle for many unfortunately may not. Here are some things you can do if you are unable to pay back your loan come October 1.

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.

The Department of Education offers several options to those who are worried about not being able to make a payment. The best option is called an “income-driven repayment plan” or IDR. These plans are designed to create a payment plan based around your income level — this unfortunately means the more you make, the more you’ll pay. On the other hand, the less you make the less you will be responsible for. These plans are designed to reduce your monthly payment amount, and if your outstanding federal student loan debt represents a significant portion of your annual income, the DoE has four different options you can choose from.

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Revised Pay As You Earn Repayment Plan (REPAYE)

REPAYE has monthly payments that are equal to 10% of your discretionary income, divided by 12. The total monthly payment is based on your adjusted gross income, family size and total eligible loan balance. 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.

Original Pay As You Earn Plan (PAYE)

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.

Income- Based Repayment Plan (IBR)

The IBR Plan has monthly payments that are equal to 15% of your discretionary income, divided by 12. These monthly payments go down to 10% of your discretionary income if you are a new borrower. This plan is for both FFEL Program and Direct Loans. Parent PLUS Loans and Consolidation loans including at least one Parent PLUS Loan are not eligible for IBR.

See: How Do the Generations Compare When It Comes to Student Loan Debt?
Find: Is College Really Worth It? A Look at the Grim Reality for Student Loan Borrowers

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Income-Contingent Repayment Plan (ICR)

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. This is the ONLY available income-driven plan for Parent PLUS loans.  The Department of Education notes that “although PLUS loans made to parents can’t be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).”

Should you not have the means to make any payments at all, and have not applied for a deferment or forebearance, then you might default on your loans. In this case, there is a grace period of six months after graduation or 15 days after the due date to make a payment. Your loan will typically go into default after 270 days of non-payment, wherein the government can then start garnishing your wages, take away professional licenses and report you to credit agencies. This is certainly something to avoid, so look up which repayment plan is best for you and all its details here.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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