It's essential to be well-prepared for the resumption of student loan payments. One of the first steps is to ensure you have access to your student loan accounts. Due to COVID-19, many loan servicers may have transferred borrower accounts to other lenders. To locate your student loans and be ready for payments, visit www.studentaid.gov and log in to access your accounts.
You may have multiple lenders, especially if you took out loans for both undergraduate and graduate studies. Logging in with each lender will help confirm that you have all necessary account information, such as your username and password.
Determining Payment Due Dates For Student Loan Payments
Knowing the exact due date of your first payment is crucial as payments will officially resume in October 2024. You should be aware of this due date to plan your finances accordingly. To find out your due date, check your student loan account, which should provide clear information about when your initial payment is due.
Assessing Monthly Payments
Once you have your due date, the next step is to determine if you can afford to make that first payment. If you are on a standard repayment plan, your monthly payment should remain the same as it was before the payment pause. You can check your online account for the exact amount of the upcoming monthly payment. However, if you were on an income-driven repayment plan, you may need to recertify your income and family size to calculate your new monthly payment.
This recertification process allows you to update your current income, which can be especially important if your income has changed during the payment pause. For example, if you are currently unemployed, your income may be reported as $0. It's also advisable to consider signing up for automatic payments, where the monthly amount due is directly withdrawn from your bank account on the due date. This can come with benefits such as a 0.25% interest rate discount on federal student loans and many private student loan companies.
Using automatic payments can help you avoid late payments, which may negatively impact your credit score and result in costly late fees.
Exploring Income-Driven Plans
With inflation on the rise since 2020, many aspects of daily life have become more expensive, including housing, gas, and groceries. If your salary has not kept up with inflation, you may need a lower student loan payment to align with your budget. Federal loans offer various income-driven repayment plans, including the new SAVE plan.
The SAVE plan can potentially result in a lower payment for many borrowers, particularly those with lower incomes. SAVE plans calculate your monthly payment as 5% of your discretionary income for undergraduate loans and 10% for graduate loans. Unlike some other income-driven plans that set discretionary income at 150% of the federal poverty guidelines for your family size, SAVE uses 225% of the federal poverty guidelines, potentially leading to significant savings.
To understand what your monthly payments will look like under each plan, you can use the official loan simulator provided by the federal government.
Deferment and Forbearance Options
If the simulated monthly payments remain beyond your means, you have the option to apply for deferment or forbearance. These programs allow you to avoid making any payments. Deferment is typically available if you meet specific criteria, such as having a cancer diagnosis. Forbearance, on the other hand, is more accessible and allows you to postpone payments. It's important to note that if you have Direct Subsidized Loans, you will not accrue interest during deferment, while all loan types will accrue interest during forbearance.
Verifying Loan Forgiveness Eligibility
If you are working toward loan forgiveness programs like Public Service Loan Forgiveness (PSLF), it's crucial to verify your eligibility for these programs. For PSLF, you can file a certification form that confirms both your employer and payment plan's eligibility for PSLF. This form will also notify you of how many eligible payments you have made, bringing you one step closer to loan forgiveness.
Understanding the Tax Impact
Due to the pause on federal student loan payments and interest during COVID-19 relief, you may not have been able to claim a student loan interest deduction on your taxes, unless you were making payments on private loans accruing interest. This deduction allows borrowers to deduct up to $2,500 in student loan interest, whether from federal or private student loans. To determine your eligibility for this deduction, you should receive a student loan interest statement (Form 1098-E) from your lender at the end of January. Review this form carefully to ensure the amount of interest paid matches your records.
Exploring Tax Strategies
Many married borrowers have discovered that they might benefit from filing taxes separately rather than jointly. This strategy can be especially advantageous when you're on certain income-driven repayment plans, including SAVE. These plans determine your monthly payment based solely on your individual income when you file taxes separately. This approach can result in a significantly lower payment, especially if your income is lower, and your total balance is higher than your spouse's. However, it's essential to consider the downsides, such as a lower standard deduction and disallowed credits when filing separately. Before making a decision about switching to one of these payment plans or changing your filing status, it's advisable to perform a detailed analysis of your total tax liability and potential student loan savings. Consult with a qualified tax accountant or expert to guide you through both scenarios.
Seeking Professional Guidance
Before making changes to your student loan payment plans or filing status, it's recommended to consult with a qualified tax accountant or expert who can help you navigate the complexities and nuances of tax strategies and student loan repayment plans.
Professional Tax Assistance with Butler Squared Consulting
If you're concerned about understanding and managing these tax rules, consider seeking professional tax assistance. Butler Squared Consulting offers the support of experts who can assist you in preparing, signing, and filing your taxes accurately. This service provides you with peace of mind that your taxes are handled correctly. Start Butler Squred Consulting Full Service today to get your taxes done right.