After a three-year hiatus, student loan payments are set to resume this Sunday, bringing with them a mix of hope, confusion, and apprehension.
The Biden administration aims to offer some relief to borrowers with a new income-driven repayment plan and an “on-ramp” program. However, this restart comes as Congress grapples with keeping the government funded.
A potential government shutdown could adversely affect student loan servicers, already challenged with managing over 45 million accounts reactivating simultaneously after the pause initiated in the early days of the COVID-19 pandemic.
What should borrowers know as student loan payments kick off?
While student loans are restarting, typical penalties for missed payments won’t kick in until October 2024. The Biden administration is offering an “on-ramp” repayment option for the upcoming year, allowing borrowers to skip payments with minimal financial repercussions.
Borrowers who miss payments won’t be labeled as delinquent, won’t face wage garnishments, and won’t be sent to debt collections.
However, interest will still accumulate on these loans, and missing payments might impact a borrower’s credit score.
Although the Department of Education has stated it won’t report missed payments to credit companies, that doesn’t guarantee these companies won’t find out.
Over 45 million Americans set to start payments
The resumption of student loans is poised to impact over 45 million Americans as all accounts reactivate simultaneously.
The average student loan borrower owes around $29,000, with the nation’s total debt surpassing $1.75 trillion.
Most of this debt is held by the federal government, which paused payments for the past three years due to the pandemic’s economic turmoil.
New income-driven repayment plan introduced
The Biden administration has rolled out a new income-driven repayment (IDR) plan ahead of the payment restart named the Saving on a Valuable Education (SAVE) plan.
This new plan is touted as the “most generous” ever offered to borrowers, according to Education Secretary Miguel Cardona.
Potential delays from student loan servicers
Student loan servicers face a daunting task as they switch on millions of accounts all at once, especially after failing to secure a requested budget increase from Congress.
“As the Department has repeatedly made clear, restarting repayment requires significant resources to avoid unnecessary harm to borrowers, such as cuts to servicing,” a spokesperson said.
Government on the brink of a shutdown
Student loans are resuming amidst tumultuous times for Congress as lawmakers scramble to pass a budget by Sunday, risking a government shutdown.
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The White House was queried about possibly delaying the restart date in light of the looming government closure.
While press secretary Karine Jean-Pierre stated student loans are a “top priority,” she did not hint at pushing back the date.
With information from The Hill