Student-loan borrowers are now beginning to pay their federal monthly bills.
There are some options for borrowers who need help affording the extra expense.
They include a new repayment plan, an on-ramp period, and more relief to come next year.
Pandemic relief for student-loan borrowers is officially over.
Since March 2020, both former President Donald Trump and President Joe Biden have extended the student-loan payment pause, with waived interest, to give federal borrowers financial relief during COVID-19. But that relief has come to an end — the bill to raise the debt ceiling Biden signed into law at the beginning of June codified the end of the pause, meaning it cannot be extended again in connection to the pandemic. Interest began accruing again on borrowers' balances on September 1, and bills will start becoming due in October.
"We understand the end of the payment pause and interest resuming on your loans can feel overwhelming—especially going into repayment for the first time," the Education Department wrote in an email to borrowers in September. "We're here to support you and ensure you have the resources to prepare for your first student loan payment in October, so you can make the best repayment decision for you."
There's no question that this transition will strain many borrowers' budgets. Inflation continues to be high, and borrowers might find they have to change their spending to account for an extra monthly bill. While pandemic relief is over, the Education Department has put forth a series of plans to help borrowers afford their monthly payments — including temporary safeguards should they miss a payment.
Here are options borrowers can consider to help ease the process, along with further relief headed their way over the next year.
In August, the Education Department officially rolled out its new income-driven repayment plan, known as the SAVE plan. The plan is intended to make monthly payments more affordable by cutting payments to $0 for borrowers making $15 an hour or less, and it's expected to save all other borrowers in repayment $1,000 a year compared to previous income-driven repayment plans.
Borrowers can now apply for the SAVE plan on Federal Student Aid's website. Borrowers who are already enrolled in the REPAYE plan — an existing repayment plan — will automatically be put on the SAVE plan.
Borrowers can expect to see this year an increase in the income exemption from 150% above the poverty line to 225%, meaning borrowers earning $32,8000 or less — or a family earning $67,500 or less — will not owe monthly payments. The plan also gets rid of accruing interest onto the total amount borrowers owe as long as they remain consistent on their payments.
There are still a few features of the plan that will not be rolled out until July 2024. At that time, undergraduate student loan payments will be reduced from 10% to 5% of a borrower's discretionary income, borrowers with original balances of $12,000 or less will receive loan forgiveness after ten years of payments, and borrowers will get credit toward forgiveness for periods in deferment or forbearance.
While the SAVE plan might be the best option for some borrowers, those with higher incomes might find their payments are more than they would owe on a standard repayment plan because the more a borrower earns, the higher their calculated payment will be.
If a borrower finds they cannot afford their monthly payments, they can make use of the 12-month "on-ramp" period beginning in October. During this period, the Education Department will not report any missed payments to credit agencies. However, interest will still build on borrowers' balances during this time, and recently updated guidance from the department stated that it does not have control over how credit scoring companies factor in missed payments.
The Education Department recommends that borrowers who can afford to make their payments to do because of the potential consequence of interest accumulation and credit scoring. Once the on-ramp concludes, normal practices for missed payments will resume for borrowers who fall into default, including wage garnishment and seizure of federal benefits.
Other forms of relief to come
Aside from repayment, the Education Department is working through other regulations, including targeted relief, for student-loan borrowers. The department is in the process of working through a one-time account adjustment for borrowers who have made the qualifying 20 or 25 years of qualifying payments on an income-driven repayment plan, but have yet to see relief. Over 800,000 borrowers saw their balances wiped out in the first batch, and the department said it will evaluate borrowers' accounts every two months to determine who else has reached the payment threshold.
The Education Department also released its final version of the gainful employment rule on Wednesday, which protects borrowers from enrolling in programs that would give them too much student debt compared to their likely post-graduation earnings. That rule will go into effect July 2024.
Broader student-loan forgiveness could be on the horizon, as well. After the Supreme Court struck down Biden's first plan to cancel student debt tied to the COVID-19 pandemic at the end of June, the Education Department announced it would pursue a different route for broad relief using the Higher Education Act of 1965. That law requires the department go through the negotiated rulemaking process, which could take a least a year because it requires a series of negotiating sessions and time for public comment. It could also run into legal challenges, and not everyone who qualified for Biden's first debt relief plan is guaranteed to qualify now.
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