Student loan payments are set to restart in 2023. Here's how borrowers should prepare.
The reality for millions of former students who wrapped up, or quit, college in 2020 is that their experience of having never made a student loan payment will come to an end in a matter of months.
The long pause on federal student debt bills, ushered in first by President Donald Trump at the start of the pandemic in March 2020, then extended, and which President Joe Biden further lengthened, was a relief to millions who borrowed tens of thousands of dollars to finance their education.
Many people were accustomed to making those payments for years before COVID, and an economic slump, emerged. But a subset of borrowers has never faced a single bill, exiting college in an era where payments never came due. Many are waiting anxiously to see if Biden's plan for mass student loan forgiveness, which goes before the Supreme Court Tuesday, survive legal challenges.
For some, it would mean instantly becoming debt free even as payments finally resume for others.
Biden will play defense on student loans this week at the Supreme Court:Here's why.
Loan forgiveness without Biden's plan? Millions of borrowers have had billions in student loan debt erased. Here's how.
The no-student-loan-payment life
For Kalyndi Martin, 24, the payment pause has meant having the money to move from Ohio to South Dakota to work as a state environmental scientist. It has meant having the money to buy a new car when her old one broke down. It's allowed her to keep up with her $1,400 monthly rent in the Rapid City area.
A life without student loans? How the payment pause has changed people’s lives
Martin, a first-generation college student, said her family couldn’t help with her expenses at Mount Holyoke College, a private liberal arts campus in Massachusetts. The college helped lower her costs with a generous financial aid package, but Martin still needed to borrow about $26,000.
She said she thinks she could afford between $200 to $300 in student loan payments a month when the pause ends, though it would be "a headache to deal with."
If the Biden plan to waive part of her debt survives legal challenges, her debt load could be cut to $6,000. Martin used a Pell Grant – a financial award for low-income students – to pay for part of her education, and that means Biden’s plan would wipe out $20,000 of her debt.
Fate of forgiveness still unclear: Biden urges Supreme Court to allow stalled student loan forgiveness effort to take effect
She is bothered by the argument that the plan unfairly benefits people who make a lot of money and wants to tell South Dakota Gov. Kristi Noem, “it’s not just helping rich people.” Noem, a Republican, is one of many governors who have condemned loan forgiveness.
“I work for your state and this will greatly benefit my life,” Martin said.
When will student loan payments restart?
The current payment pause could last through August 2023, but it depends on the Supreme Court. Biden extended a freeze on payments – and a zero percent interest rate – for 60 days after litigation concludes or the mass debt relief program launches.
Borrowers should be forgiven for being skeptical about when payments would resume, however, given how many times the Trump and Biden administrations extended the moratorium.
Trump paused student loan payments in March 2020. The pause initially was supposed to end after two months, but Trump extended it through January 2021, and Biden extended the pause multiple times, often just weeks before the moratorium was set to expire.
What happened to free college? Cutting cost of higher ed out of feds' reach
What’s different this time around: The Biden administration tried to cancel billions in student loan debt and restart payments after the widespread relief took hold. Conservative states and advocacy groups have sued to stop Biden’s plan and arguments will be heard in the case later this month.
How should student loan borrowers prepare for payments in 2023?
Regardless of what happens with the Supreme Court, borrowers ought to prepare for payments to restart, said Betsy Mayotte, the president of nonprofit the Institute of Student Loan Advisors. And they should avoid spending as though the debt was already forgiven.
To that end, she suggested borrowers – both those new to payments and those with older loans – set-up an interest-bearing account where they deposit what they expect their monthly payments to be. Mayotte said a little interest can go a long way, but, more importantly, developing the practice of budgeting for student loan payments can help borrowers rebuild or create a new routine.
“Everybody has sort of lost that habit over the last three years,” Mayotte said.
She also said borrowers have the “luxury of time” to enroll now in one of the government’s plans that adjusts monthly payments based on their wages. These income-driven repayment plans can lower a borrowers’ monthly obligations, though they do extend the life of the loan.
What about Biden’s new income driven-repayment plan?
As part of the president’s initiative to erase student loan debt en masse, he introduced a new version of an income-driven repayment plan that is expected to further reduce student loan bills. Though reduced payments are easier for borrowers to manage, they often don’t cover the interest still accumulating on the loans. Biden has said the new plan will subsidize those interest costs.
Borrowers have a lot to gain from the new approach, but Mayotte said it will likely take until 2024 for Education Department officials to push the plan through the federal government’s regulatory process.
So for borrowers excited to take advantage of the newest income-driven repayment plan, Mayotte said, “they should 1000% not wait,” and instead enroll in one of the plans already available.
They can shift to a different plan later.
How has student loan debt already affected borrowers’ lives?
Borrowers USA TODAY spoke with, including those who have never made a payment, were optimistic about their ability to repay their debts.
Madison Sasser, 23, hasn't had to make any payments on her loans since graduating with a degree in political science from the University of South Florida in late 2020.
Earning her degree already felt like an accomplishment: Neither of Sasser's parents graduated from college, and she knew from an early age she wanted a degree to secure a well-paying job.
She borrowed judiciously and wound up with about $15,000 in debt. (Sasser's entire outstanding tab would be wiped out under Biden's plan since she's eligible for $20,000 in debt relief.)
She started thinking about repaying those loans right away, but some prospective employers weren’t sure if they would survive as COVID battered the globe.
Sasser took a job waiting tables after her winter 2020 graduation to make a living, and she launched her writing career at the same time. She continues to work as a server and makes time to write about Generation Z and the workforce, among other topics. She delayed plans indefinitely to go to law school, however, because she didn’t want to borrow more. Her church subscribes to the messages of Dave Ramsey, an evangelical Christian radio host who advises against taking on debt.
“You have to have an education,” she said. “And if your family can’t pay for it, then you have to take out loans.”
Colleges are quitting the US News rankings:So, how do you pick a school?
What does the uncertainty about the payment pause and loan forgiveness mean for students?
Like many borrowers, Daniel Fink, 32, appreciated the payment pause, but he wished he knew how long it was going to last from the start. He has paid about $5,000 of the $21,000 in federal money he borrowed to earn a bachelor's degree in 2020 in applied management from Grand Canyon University since the start of the payment pause.
“If I knew the payments would be frozen for so long, there were other bills that actually have interest that I could have put my money towards,” Fink said.
Student forgiveness would reach millions:Which states benefit the most from Biden's student loan forgiveness plan?
Fink, who lives in Arizona, expects he and his wife will be able to make student loan payments without too much effort once the freeze finally lifts, but he questioned if it was worth borrowing at all to attend college.
He said his degree hasn't yet helped him clinch a job. He is working as a professional driver. Fink said he pursued his degree following discussions with his wife. He had already earned an associates, and the thinking went, he said, that having the bachelor’s degree would open up more doors.
He said he enjoyed his classes, but “I don’t think I’d do it again if I had the choice.”
Fink is part of a growing contingent of Americans questioning the value of a bachelor’s degree. A USA TODAY and Public Agenda poll in 2022 found just about half of Americans believe the benefits of a degree outweigh its costs.
What is next for student loan forgiveness?
The Supreme Court will hear arguments in the two primary cases against the plan later this month, both of which center around the president's authority to unilaterally cancel student loan debt.
The justices will parse that question and issue a verdict by summer, but meanwhile borrowers are left in the same place they have been for three years: laden with questions without many answers.
Contact Chris Quintana at (202) 308-9021 or email@example.com. Follow him on Twitter at @CQuintanadc.