About 45 million Americans may have to pare back their final summer Labor Day weekend trip this year because that’s the weekend interest starts accruing again on federal student loans, and they’ll have to be financially ready to start repaying.
Without a Supreme Court ruling before June 30, interest begins adding up again on September 1, the Friday before Labor Day. The first payments on student loans in more than three years will be due in October, according to an Education Department spokesperson.
That’s because, in exchange for a raised debt ceiling about 10 days ago, the Biden administration agreed, among other things, that it wouldn’t renege on the “final” pause like it did last year. Last August, the administration said the fourth and “final extension” would expire on Dec. 31, 2022, but by November, it extended that deadline to either 60 days after the Supreme Court issues a decision on the relief program or 60 days after June 30 – whichever came first.
The payment pause is ending.What do I do now?
Expect to hear from loan servicers ahead of bills coming due
To assist the roughly 45 million Americans who have federal student debt, the Education Department spokesperson said it will “be in direct touch with borrowers and ramping up our communications with servicers well before repayment resumes to ensure borrowers and their families are receiving accurate and timely information about the return to repayment.”
However, loan servicers have warned that budget cuts at the Department of Education forced the agency months ago to modify its contracts with servicers. Changes included cutting the pay servicers earn helping each borrower and the minimum number of hours customer service centers must open each week. Those cuts translate into fewer servicers working fewer hours to help people coming off a fifth consecutive payment pause.
Servicers are the first people borrowers turn to when they need help with their student loans. Servicers help borrowers enroll in affordable repayment programs and manage the other logistics of paying student loan bills.
What can you do now to avoid long waits?
Be proactive. Contact your loan servicer now before repayments resume to find out what your interest rate is, confirm personal information, loan amounts and payment plans.
If your income has changed and you’re not sure you can make your payments, your loan servicer can walk you through your options. The Biden administration revamped income-driven-repayment (IDR) plans, making them more affordable to many more people.
How can student loan debt be erased?A few ways to go about it.
Can the Supreme Court still stop repayments?
No, not for everyone. Even if the Supreme Court rules student debt relief can proceed, which most see as unlikely, about 25 million Americans would still have some balance to pay. That’s because of the roughly 45 million people who hold student debt, Biden said about 20 million would have their debt completely erased if his plan is upheld by the Supreme Court, leaving 25 million who would still have to make some payments.
The White House student loan relief plan forgives up to $20,000 in student loans for Americans with individual incomes of less than $125,000. The average borrower has around $38,000 in loans and will still need to make payments even if the Biden forgiveness plan goes into effect, according to a recent survey from Highway Benefits, an employee benefits platform company.