(NerdWallet) – After more than three years on the back burner, monthly federal student loan payments will finally resume 60 days after June 30 — and 1 in 5 borrowers could struggle when that happens, according to a new analysis from the federal Consumer Financial Protection Bureau.
Many borrowers could also fall behind on other debt obligations when student loan payments resume. More than 1 in 13 student loan borrowers are currently behind on other bills, an increase from before the pandemic, per the June 7 CFPB report, which analyzed a sample of about 32 million borrowers with outstanding federal student loans.
President Joe Biden’s one-time debt cancellation plan could impact these findings. The Supreme Court is expected to decide by the end of June whether the proposal to erase up to $20,000 in student loan debt per borrower can be implemented. But even if the Supreme Court upholds Biden’s student debt plan, payments will still resume on any remaining debt later this summer.
The CFPB report also touched on risk factors, such as borrower age and the fact that millions of loans are being transferred to different servicers. If you think you’ll struggle when repayment resumes, there are steps you can take now to put yourself in a better position.
Younger borrowers face budget concerns
Borrowers who left school and exhausted their six-month payment grace period during forbearance will need to fit student loan payments into their budget for the first time. That could be a challenge, especially if they’ve rented a pricier apartment, financed a car or taken on other debt with the assumption that they could afford those monthly bills.
And many have done just that, the CFPB found. Today, younger borrowers (ages 18-29) face higher monthly bills than they did prior to forbearance. The typical younger student loan borrower now has median nonstudent loan, nonmortgage monthly debt payments north of $200, up from about $65 in March 2020.
Servicer switches complicate repayment
To make matters even more confusing, the servicer that manages your student loan payments may have switched over the past three years. More than 14 million borrowers — 44% of the CFPB’s sample — will have to work with at least one federal student loan servicer that’s new to them since March 2020.
As a result, these borrowers may need to find out who their new servicer is, in addition to creating new logins with their new servicer and signing up for automatic payments again.
What to do if you’ll struggle when student loans resume
Although this report paints a bleak picture of what’s to come in a few months, student loan borrowers still have time to get ahead of payments and make a plan. Making a plan will be crucial, since the consequences of not paying your bills when they resume can be severe: It could lead to student loan default, a damaged credit score and seized paychecks.
Here are a few steps you can take today to set yourself up for success and avoid missing payments.
If your income fell, or you’re already struggling with other bills
An income-driven repayment (IDR) plan can cap your monthly student loan bills at a set percentage of your income and erase remaining student debt after you make payments for a set number of years. You could owe as little as $0 per month.
To sign up, contact your student loan servicer. You can submit paperwork now so that you’re set to go into an IDR plan when payments resume.
If your servicer has switched
Your federal student loan servicer landscape may have changed over the past few years. You’re supposed to get a letter or email from both your old and new servicer if this happens, but you may have missed a notification if you moved, for example.
If you’re not sure who your servicer is, log in to My Federal Student Aid using your FSA ID to find out. There, you can see your current servicer, view loan details, apply for a direct consolidation loan or sign up for an IDR plan.
If you’re preparing to pay student loan bills for the first time
If it’s your first time paying student loans, you may need to log in to your FSA account to figure out who your servicer is and how much you owe. Your servicer will be able to tell you how much your monthly payment could be under various repayment plans.
And if you have other major monthly bills beyond student loans, now’s the time to take a good look at your spending habits and budget. This could mean reevaluating your current lifestyle.
If you already have student loans in default
If you had student loans in default before forbearance began, you should enroll in a temporary government program called Fresh Start, which allows you to get your student loans back in good standing, build your credit score and sign up for an IDR plan.