Student loan repayments are resuming this Sunday, Oct 1, after a three-year pause. More than 40 million borrowers all over the country owe student debt now totaling over $1.7 trillion. The Biden administration had already planned to end the payment pause, at the very latest, 60 days after June 30, which would have been around August 30. This timeline would have coincided with the rollout of Biden's widespread forgiveness program, assuming it held up in the Supreme Court. However, the plan was ultimately shot down. Either way, debt ceiling negotiations in May codified the October start date as part of the agreement.
According to a recent report from Credit Karma, more than half of federal student loan borrowers will have to choose between repayments and necessities, limiting consumer spending. Interest already started accruing earlier this month. If borrowers haven't already made a plan to restart their payments, it is absolutely critical that they make plans as soon as possible.
Despite having his student loan forgiveness plan shot down, President Joe Biden implemented two other major changes to student loan repayment that should help struggling borrowers.
The first is the SAVE plan, a new income-driven repayment plan that replaces REPAYE. Many borrowers stand to save the most amount of money on this plan.
The other is the temporary on-ramp period, which protects financially vulnerable borrowers from the severe consequences of missing payments as we transition back into regular repayment. From Oct 1, 2023 through Sep. 30, 2024, borrowers will not have missed student loan payments reported to the credit bureaus or referred to debt collectors. Loans will also not be considered delinquent or in default. However, borrowers must repay any missed payments when the on-ramp period ends.
The government sets federal student loan interest rates that are not dependent on the credit or financial situation of borrowers. They are fixed rates, meaning they remain locked in once the borrower takes out a loan. An undergraduate borrower who takes out a loan today would pay an interest rate of 5.5%.
Private student loans, which individual financial institutions provide, usually have variable rates. This means rates can go up or down depending on market conditions. We've been experiencing rising rates, and the average private student loan rate stands at about 6% to 7% for those with good credit. However, borrowers with no credit history or poor credit may pay much higher rates or not qualify without a co-signer.
"Examining your monthly budget and looking for ways to fit your student loan payments back in is important. That might mean cutting expenses such as a gym or Netflix subscription or taking on a side hustle to earn more income. Borrowers can also look into income-driven repayment plans such as the new SAVE plan if payments are too high compared to their income," said debt attorney Leslie Tayne.
With student loan payments resuming, she alerts scams are on the rise: "The FTC (Federal Trade Commission) is cracking down on companies that falsely represent the U.S. Department of Education and charge fees for forgiveness programs that don't exist. These scammers often contact borrowers by email, phone and even text."
The debt attorney also reminded that "boycotting your student loans won't change the fact that you owe the money. If you fail to repay your loans, you not only rack up interest and penalties but will eventually default. The government could start garnishing your wages and tax refunds at that point. With private loans, the lender could sue you in court for non-payment. Your credit will be severely damaged, making it difficult to borrow money, rent an apartment, open utility accounts and more."
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