Topline
For the first time in over three years, student loan borrowers will have to make payments again over the next few weeks, and between a new payment plan and a one-year “on ramp” program, there’s a fair amount to keep track of when returning to payments.
For the first time in more than three years, student loan borrowers have payments to make. (Photo … [+] by Kevork Djansezian/Getty Images)
Key Facts
Interest began accumulating on federal student loans starting September 1, after legislation required the government to end a moratorium that started in early 2020, though mandatory payments don’t start again until October.
Payments restart for all federal borrowers sometime in October, but the actual due date won’t be the same for everyone; regardless, borrowers will get a bill from a loan servicer—a private company that contracts with the government—with a payment amount and due date at least 21 days before it’s due, according to the Department of Education.
The loan servicer that borrowers had upon graduation also may have changed: Servicers are assigned to borrowers by the Department of Education, but during the three-year pause some—including Navient and Pennsylvania Higher Education Assistance—transferred accounts, ended their contracts and moved accounts to other servicers; to check who your servicer is, log in to the Federal Student Aid Information Center.
Borrowers who can’t make monthly payments won’t be punished right away: The government created a “temporary on-ramp period” for some loans that runs through next September, so if any borrowers miss a payment before then, they won’t be reported as delinquent to credit agencies—but interest will still accrue, and credit score companies can still factor in the missed or late payments.
Before the on-ramp period was introduced, a loan was considered delinquent as soon as a payment was missed and went into default after 270 days—default could result in a lower credit score, not receiving parts of tax refunds or paychecks or not being able to enter deferment or receive additional aid.
The government is also recommending people apply for the new repayment plan approved by President Joe Biden—the SAVE plan—that calculates payments using a borrower’s income and family size rather than their loan balance (producing lower payments for many borrowers), and will forgive some remaining balances sooner.
Loan forgiveness programs may still be an option for some borrowers—like the Public Service Loan Forgiveness program for employees of the government or not-for-profit organizations and borrowers who have been paying off their loans for years—but borrowers still need to make regular payments in order to qualify for those plans.
Big Number
$1.6 trillion. That’s how much outstanding student loan debt there is in the United States, distributed among more than 40 million borrowers.
Surprising Fact
Congress narrowly avoided a government shutdown with hours to spare late Saturday, funding the government for just over six weeks. If Republicans and Democrats are unable to negotiate a funding deal by their new November 17 deadline and the government shuts down, student loan payments would most likely still be due—unless another pause is granted. On Friday, U.S. Under Secretary of Education James Kvaal said that because Congress “mandated a return to repayment as part of the budget deal over the course of the summer,” they are required to resume collecting student loans this month even if the government shuts down, NPR reported. While it wouldn’t stop payments, a shutdown could stress the federal system enough that borrowers could feel the pain of it. Loan servicers are already dealing with record wait times for assistance as people prepare to pay again, the Washington Post reported, and if a shutdown were to persist beyond a couple of weeks, there “could be significant disruption to the service we provide to borrowers, including call center operations,” Kvaal said, making the transition back to payments harder than it already is.
What To Watch For
How student loan payments starting again impacts the greater economy. Oxford Economics predicted in order for Americans to make room for monthly loan payments in their budgets, they’re expected to cut back about $100 billion of other spending annually. Jefferies, a financial services firm, also warned of “a significant risk to consumer spending ahead” after surveying 600 consumers with student loan debt, about half of whom were “very concerned” about meeting their expenses, CNBC reported.
Key Background
Payments were first paused by former President Donald Trump in March 2020 as Covid-19 spread. The pause also froze interest on loans, and was extended a number of times until May, when Biden and House Speaker Kevin McCarthy agreed to not extend the freeze again as part of a deal to avoid a government shutdown. In an unrelated move, Biden tried to forgive up to $10,000 in student loans for many borrowers—or $20,000 for Pell Grant recipients—but the Supreme Court ruled the administration overstepped its power. It was estimated that about 40 million people would have been helped by the program, which would have forgiven about $400 billion in student loans, and 16 million had already been approved for forgiveness before the Supreme Court shut it down. The Biden Administration is in the process of developing a new debt relief program using negotiated rulemaking, but there isn’t a set timeline of when they expect a new proposal to be done, according to the Department of Education—and it remains unclear whether the court system will allow the new program to stand.
Further Reading
Washington PostEverything you need to know as student loan payments resumeThe HillAfter three years, student loan payments are back
