Following the SCOTUS decision to strike down President Biden’s student loan forgiveness plan and the announcement that the 3-year interest-free payment pause will end this Fall, borrowers now need to quickly recalibrate their budgets to make monthly student loan payments again.
In an effort to alleviate repayment challenges, the Biden administration has enacted a temporary 12-month on-ramp period to spare borrowers from the harsh consequences of falling behind. Here’s what you need to know:
The Road Ahead
Acknowledging the challenges that some may face, the Biden administration’s on-ramp period aims to help borrowers ease back into repayment after a three-year payment pause. It is reported that the on-ramp will use provisions set forth by the Higher Education Act of 1965.
Signed into law by President Lyndon B. Johnson, the Higher Education Act was put in place to strengthen educational resources and provide financial assistance to students seeking post-secondary and higher education. Throughout the years, the act has been amended and is currently under reauthorization for 2023–2024.
While not an extension of the 2020 student loan payment pause, the on-ramp period could provide much-needed leeway. Under the plan, any missed or late payments from Oct. 1, 2023, to Sept. 30, 2024, won’t incur penalties, be reported to the credit bureaus, or default the loan. Additionally, late fees will not be charged. However, it should be noted that interest will still accrue during this time, so continuing to make payments, if possible, is strongly recommended.
Options for Repayment Once the On-Ramp Ends
Following the conclusion of the year-long on-ramp period, if you still cannot make your payments or are encountering financial difficulties, it’s best to connect with your student loan servicer to understand your options so you don’t go into default.
Beyond this period, you may want to explore repayment options such as:
- An income-driven repayment plan (IDR) – These plans cap your monthly student loan payments at a percentage of your discretionary income, and any remaining balance after 20 to 25 years is discharged. There are several plans to choose from, including the new Saving on A Valuable Education (SAVE) plan that’s replacing the Revised Pay As You Earn (REPAYE) plan. Speak to your student loan servicer to decide which one meets your needs best.
- Refinancing your loan – To lower interest rates, you may want to consider refinancing your student loan. Refinancing is the process of taking out a new loan to replace your existing one. When you refinance, the interest rate and terms of the loan can change, so be sure to compare lenders and weigh all options carefully.
- Deferments and forbearances – These options can temporarily stop or lower your payments, but interest still accrues.
Though the on-ramp period may be a temporary solution, it’s important to keep informed about your options so you can remain compliant with your loan repayment obligations down the line. You don’t have to go it alone – take advantage of the tools and resources available to get back on track and ensure that payment responsibilities are met.