NEWS
Student Loan Repayment To Resume in October Even If The Government Shuts Down
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Student loan payments are set to resume on Sunday, even in the event of a government shutdown, according to the Department of Education.
Though government shutdowns have never halted borrowers’ payments before, the Education Department has previously warned of the strain of restarting millions of borrowers’ accounts at once, and has not received its requested budget increase.
Interest accrual on student loans resumed Sept. 1, and borrowers will have to begin making payments in October, after they were paused for more than three years due to the COVID-19 pandemic.
The Biden administration previously approved more than $116 billion in student debt cancellation for 3.4 million eligible borrowers, and the new SAVE, or Saving on a Valuable Education, plan targets an estimated 20 million borrowers who were not eligible.
Under the SAVE plan, payments are calculated based on income and family size, which will allow approved borrowers to reduce their monthly payments on undergraduate loans from 10% of disposable income to 5%.
For individual borrowers with an annual income less than about $32,000, monthly payments will be reduced to $0 until their income rises. For borrowers with a family of four, the annual income floor is about $67,000.
To achieve this, the Department of Education will stop charging any monthly interest not covered by the borrower’s payment on the SAVE plan.
The administration said the average borrower will save about $1000 per year under the new repayment plan, which marks a step toward appeasing overburdened student borrowers without an across-the-board cancellation of student debts.
There is also an “on-ramp” for borrowers, as penalties for missed payments will not be enacted until October 2024. Interest will still accrue for borrowers who miss payments, but their accounts will not be labeled as delinquent, they will not have their wages garnished, and they will not be referred to debt collections.
In a press briefing on Monday, White House Press Secretary Karine Jean-Pierre said that in the event of a government shutdown, the administration anticipates that “key activities at Federal Student Aid will continue for a couple of weeks.”
“A prolonged shutdown lasting more than a few weeks could substantially disrupt the return to repayment effort and long-term servicing support for borrowers,” Jean-Pierre said.
“Just because the government shuts down doesn’t mean you won’t be responsible,” financial expert Ted Jenkin, who is also the co-founder of Exit Stage Left Advisors, warned. “It’s been three and half years since borrowers have made a payment, so families need to be preparing for that in their monthly budgets right now.”
Offering advice for borrowers facing this challenge, financial coach Lisa Chastain emphasized the importance of proactive action.
“Borrowers need to log into their loan service provider immediately to know what they need to repay and to enter into new payment agreements. Waiting for your loan service provider to contact you might end up costing you,” Chastain said. “With so many changes happening all at once, the best thing you can be is informed. Log in today and be on the offense when it comes to your loan repayment. There will be no magic wand that will magically wave the debt away. The best thing borrowers can do is rely on facts and their loan statuses are available online now.”
TMX contributed to this article.
