5 Steps to Prepare for Student Loan Repayment

Federal student loan repayment resumes in the coming months — interest begins accruing in September, with payments starting in October — after a 3½-year payment pause. According to a new NerdWallet survey, most federal student loan borrowers (88%) didn’t make payments during the pandemic forbearance. If you’re one of these borrowers, here are five steps to prepare for repayment.

1. Know your details

According to the survey, nearly half of federal student loan borrowers (46%) don’t know how much student loan debt they currently have, and 57% don’t know who their loan servicer is. Close to a third of federal student loan borrowers (31%) aren’t sure what their interest rates will be when forbearance ends, and 27% aren’t sure how to make payments at that time.

If you don’t know who your student loan servicer is, log in to the Federal Student Aid website using your FSA ID (you can create one if you don’t yet have one). On the left, you’ll see your total balance, and on the right, your loan servicer(s). You can make payments on your loan servicer’s website, as well as find interest rate information. Because of the payment pause, interest rates might only appear as 0%, but your issuer website(s) should tell you when loans were disbursed, and you can look up the rates on the FSA site by disbursement date(s).

» GET READY: Download NerdWallet’s student loan repayment checklist

2. Decide on a payment plan

The standard repayment plan is 10 years, and if you can afford the payments, this is probably the best choice to minimize interest costs. However, there are other repayment plans that can lower your monthly amount owed. The survey found that 60% of federal student loan borrowers don’t know what options they have for payment programs.

For many, an income-driven repayment plan will be a good choice to lower your monthly cost by capping payments at a percentage of your discretionary income and forgiving the remainder after 20 or 25 years of payments. The Biden administration is also rolling out the SAVE plan to make payments even lower and forgive balances sooner for students with an original student loan debt of $12,000 or less.

If you do opt for an income-driven plan, understand that any amount forgiven at the end of repayment may be subject to taxation.

3. Review your budget

According to the survey, nearly 2 in 5 federal student loan borrowers (38%) say they’ll need to significantly change their budget in order to afford student loan payments once forbearance ends. Look through your current budget and see where extras can be cut in order to make your payment. For a good starting point, you can see how your current spending aligns with the 50/30/20 budget, which recommends spending 50% of your income on needs, 30% on wants and 20% on debt payments and savings.

If there aren’t extras to be cut, even after lowering your payment through an income-driven repayment plan, you might choose to not make payments for up to a year. The Biden administration has instituted a 12-month onramp period, meaning you won’t be penalized for not making payments. But there are drawbacks to taking this route.

» MORE: The student loan 'on-ramp': Should you delay payments for a year?

4. Understand the downside of not making payments

With the onramp period, you can choose not to make payments to your federal student loans without going into default, so your credit won’t take a hit if you can’t pay. However, interest will continue to accrue, so you’ll find yourself in more debt by the end of the 12-month period. Also, this is only a temporary solution, and after a year, you’ll have to make payments again or risk default.

So yes, you can miss payments for that 12-month period, if necessary. But if you can reasonably find a way to pay, it’s a good idea to do so.

5. Set up autopay

For direct federal student loans, you can get a small interest rate break — a reduction of 0.25 percentage point — by setting up automatic payments. This isn’t going to make your loans significantly more affordable, but if you know you’ll have adequate funds available in your bank account in time for each due date, it will save you some money and also ensures you won’t miss any payments.