Oct. 1 marks the start of spooky season in more ways than one. For the first time in years, more than 28 million federal student loan borrowers are expected to start paying their loans again.
Here’s some tips to help people prepare – so those payments don’t creep up on them like zombies from the “Thriller” music video.
What happened with student loans?
Student loan payments were paused in March 2020, during the early days of the COVID-19 pandemic, by the administration of former President Donald Trump. Interest rates were set at 0% and borrowers had an option to suspend their payments. Though these measures were set to last for just short periods of time, the pandemic emergency order expired just this May.
Since the student loan payment pause started, an estimated 7 million new federal student loan borrowers joined the system. They haven’t made even one payment yet, according to NPR.
President Joe Biden’s administration announced plans to relieve a significant amount of student debt, but those plans were struck down by the conservative-leaning U.S. Supreme Court.
“Nearly 90% of the relief from our plan would have gone to borrowers making less than $75,000 a year, and none of it would have gone to people making more than $125,000,” said Biden. “It would have been life-changing for millions of Americans and their families. And it would have been good for economic growth, both in the short- and long-term.”
What’s going on with student loans now?
Even though the Biden administration’s plans for debt relief were rejected, it was still able to offer some help to borrowers who will soon have to make payments.
In June, the White House announced that the Department of Education “finalized the most affordable repayment plan ever created.”
This plan is called the Saving on a Valuable Education (SAVE) plan. It is an income-driven repayment the Biden administration said will “cut borrowers’ monthly payments in half, allow many borrowers to make $0 monthly payments, save all other borrowers at least $1,000 per year, and ensure borrowers don’t see their balances grow from unpaid interest.”
Additionally, the White House announced a 12-month “on-ramp” to repayment from Oct. 1 through Sept. 30 of next year. Through this program, “financially vulnerable” borrows who miss payments will not be considered delinquent, be reported to credit bureaus, placed in default, or referred to debt collection agencies.
The tips
While the “on ramp” provides relief to those with no other options, NPR strongly advised borrowers not to miss payments.
“Here’s the problem: loan interest will continue to accrue regardless of whether you make your payments,” the outlet explained. It also said that borrowers should especially avoid going 270 days without a payment, called defaulting. If they do, the government could dip into their wages, tax refunds and Social Security.
NPR also recommended that borrowers head to the federal government’s student loan portal right away to begin their payments and that they check out the Department of Education’s office of Federal Student Aid loan simulator tool.
Another way to make the process to payments easier is enrolling in autopay. According to NPR, that move could lower borrower’s interest rates. Public Service Loan Forgiveness is yet another resource borrowers can look into ahead of Oct. 1. Those who work for 10 years in public service (government or for a qualified nonprofit) while making 120 qualifying payments have their remaining balance forgiven.
Those considering refinancing their student loans should wait, The Wall Street Journal said this week.
What if the government shuts down?
Bloomberg reported this week that long wait times and glitchy websites are already making things a nightmare for borrowers trying to get ready to pay loans. On top of that, there are concerns floating about a government shutdown due to tension in Congress.
“If lawmakers don't agree on a solution, employees across all federal agencies would be furloughed, including nearly all of the Department of Education’s staff,” Yahoo Finance reported.
Yes, the government will still be collecting the payments even if it shuts down, said the outlet. NPR recommends that borrowers contact their student loan servicers right away if they haven’t already.