The Education Department stated that student loan repayments will be due starting in October. Changing that plan will be challenging due to a recent law enacted by Congress.
Throughout the three-year-long pause on student loan repayments, the US Department of Education has consistently informed borrowers about the imminent resumption of their bills, only to retract those statements and grant them more time.
However, this time around, the agency is resolute in its decision.
Biden’s Student Loan Forgiveness Plan Still Pending in Supreme Court
The Biden administration faces the challenge of preparing Americans for student loan payment restart without knowing their fall obligations. The Supreme Court’s verdict on Biden’s plan to cancel up to $20,000 in student debt is still pending. An estimated 37 million people would qualify for some loan cancellation.
Approximately 14 million borrowers with federal student loans could have their balances entirely forgiven. If the forgiveness plan is approved, these borrowers will not owe anything in October.
The Education Department intends to recalculate monthly payments for those with remaining balances based on lower debts and the repayment timeline.
For example, if a person owes $30,000 at 5% interest, their monthly payment may decrease to approximately $210 after receiving $10,000 in relief.
3 years of cancellation of student loan repayments
Around 40 million Americans have education debt, with a typical monthly bill of $350. The payment pause has been life-altering for many borrowers, saving them from financial ruin.
The expiration of the pandemic-era policy will likely be a significant adjustment for borrowers.
Since then, the pause has been extended on eight separate occasions. An analysis conducted by higher education expert Mark Kantrowitz reveals that nearly all eligible borrowers have taken advantage of the relief.
Less than 1% of qualifying borrowers have continued paying for their education debt.
According to Kantrowitz, the average borrower potentially saved approximately $15,000 in student loan repayments due to the policy.
Impact of Repayments on Borrowers
Finally, the U.S. Department of Education is firmly committed to reinstating student loan payments. Throughout the pandemic, the pause has provided borrowers with significant financial relief.
By granting extensions, it has aided borrowers in navigating the economic challenges resulting from the pandemic.
However, borrowers must now prepare for the conclusion of the pause and the resumption of payments.
The total student loan debt in the U.S. currently amounts to nearly $1.8 trillion.
Why Fall is the End
The Education Department highlights on its financial aid website that further extensions of the payment pause have been prevented due to a recent law.
This law was enacted after President Joe Biden signed an agreement in early June. The law raised the nation’s debt ceiling and involved negotiations between Republicans and Democrats.
In exchange for approving the borrowing limit increase, Republicans insisted on substantial cuts to federal spending. However, they sought to repeal Biden’s executive action on student loan forgiveness.
The administration, though, stood firm in refusing their demand. However, within the agreement, a provision formally ends the pause by the conclusion of August.
As a result, the Education Department’s website now reflects the impact of this law on the payment pause, signaling the approaching expiration of the relief period for student loan repayments.
Interest will be charged from September
Prior to the agreement, the Biden administration had been getting borrowers ready for payment resumption by September. During a Senate hearing, Education Secretary Miguel Cardona affirmed this, stating, “We’re preparing our borrowers to restart.” Cardona’s statement indicates that the emergency period has concluded.
The Education Department has announced that borrowers will be required to make their first payment after the pause in October.
Starting September 1, interest will begin accruing on borrowers’ debt again, as per the department.
According to Kantrowitz, the specific due dates will differ depending on individual account details. Kantrowitz mentioned that borrowers will have at least 21 days after receiving a loan statement to pay.