The End of Free-Ride: Federal Student Loan Payment Resumes in October

By Elliot Chen August 31, 2023

Since 2020, nearly 44 million federal student loan borrowers have enjoyed a freeze on repayments, a respite that comes to a halt this October. Here’s what you need to know.

Federal student loan holders are in for a reality check as they brace for the resumption of their monthly student loan payments starting this October – a sobering shift after more than three years of non-payment due to the pandemic-induced pause.

The freeze, which has been a fixture since March 2020, came as a boon to almost 44 million borrowers by stalling their repayments. While both the Trump and Biden administrations extended it multiple times, it is set to finally conclude this fall after congressional intervention against further extensions.

The nationwide resumption of payments for so many borrowers signifies an unparalleled undertaking. Here's what borrowers should be aware of:

Interest on federal student loans, frozen at 0% since March 2020, will start accruing again from September 1. Despite this shift, borrowers won't be required to take any action until their first monthly payment is due.

The due date for the first repayment will vary from borrower to borrower, typically falling somewhere in October. Borrowers will be apprised of their due date and payment amount at least 21 days before it. Fresh graduates, however, are exempt from payments until their grace period, usually six to nine months post-schooling, lapses.

Broadly, monthly payments are likely to remain unchanged from pre-pandemic levels, barring optional payments or account modifications such as loan consolidation.

Betsy Mayotte, President of The Institute of Student Loan Advisors, elucidates further. Normally, those enrolled in income-based repayment plans need to recertify their income yearly and see their monthly dues adjust accordingly. The pause, however, eliminated this requirement, pushing the next need for income data submission to March 2024 at the earliest.

Coming to loan servicers, changes are afoot here too. For instance, contract terminations by FedLoan and Navient with the Department of Education have led to loan transfers to Aidvantage, EdFinancial, Nelnet, or the Missouri Higher Education Loan Authority, known as MOHELA. Borrowers can determine their loan handler by logging into the Federal Student Aid website.

Borrowers previously subscribed to automatic payments will likely have to re-enroll, though signing up for auto-pay earns a 0.25% deduction on the interest rate.

Borrowers are automatically enrolled in a standard, 10-year repayment plan but can switch to various income-driven repayment plans that could lower monthly dues. Take note, however, that reducing monthly payments could lead to a longer repayment duration and higher total dues due to extended interest accumulation.

A refusal or inability to resume payments from September 1 will lead to the borrower incurring higher debts over time due to accruing interest. A default can mar a borrower’s credit score and result in federal tax refund or paycheck withholdings.

In the event of a default occurring before the pause in March 2020, the Department of Education offers an avenue to redress via the "Fresh Start" program.

June saw the Supreme Court quash President Joe Biden's student loan forgiveness initiative, postponing the resumption of student loan payments without federal student debt relief. Despite this setback, the Biden administration is exploring new ways to deliver some form of debt relief, albeit with no clarity on eligibility or relief amount as yet.

The administration has approved over $116 billion in loan discharges for more than 3.4 million individuals. Most recently, $39 billion was wiped from federal student loans of 804,000 borrowers. The Department of Education has also eased the path to student loan forgiveness for borrowers unfairly treated by for-profit colleges and disabled borrowers.