Budget worries loom as college loans finally come due again 3 1/2 years later

Whether ex-students are in their 20s or grandparents, whether they graduated or dropped out, the bill is due, creating tough decisions

Since the beginning of the COVID pandemic over 3 1/2 years ago, student loan borrowers have had a reprieve from the federal government, pausing loan repayment and interest accrual — a respite that finally comes to an end this month.

While some loan holders have continued to make payments during the pause, others have used the forbearance period to get a better hold on other finances, or just to make ends meet.

Now — after the Supreme Court rejected a broad Biden administration loan forgiveness plan and Congress passed a law preventing further repayment pauses — tens of millions of loan holders will be required to restart payments this month, though some remain in a financial standing similar to when the pandemic began.

“The payment restart comes at the worst time for me,” said Dayton resident Lauren Barber, who earned a master’s degree in mental health counseling from Wright State University in 2021. “Between inflation with gas, groceries and all other costs, my husband and I already live on a pretty tight budget.”

Barber said that while she had contacted her loan provider to prepare for the restart, the repayment plans she’s been offered aren’t affordable for her.

“I submitted an application to change my repayment plan but according to the estimate, I still don’t think the payment will be feasible,” she said, adding that she is in another forbearance period pending her application review. “I’m just kind of in limbo until that gets reviewed.”

Middletown resident Amanda Feuerstein, who works for the Dayton Metro Library system, said she opted not to continue payment of her loans while the pause was in effect, as she qualifies for the Public Service Loan Forgiveness Program, which is offered to borrowers who are employed by eligible public service employers.

This program forgives the remaining balance of a loan after a borrower has made a qualifying number of monthly payments.

“Whatever I don’t pay after 10 years gets forgiven, (and) I don’t want to pay any more than I have to,” Feuerstein said.

Feuerstein, who graduated from Bowling Green State University in 2012, said she was able to qualify for a monthly payment that works for her.

“I applied for the lowest payment plan, so it’s $85 per month,” Feuerstein said. “Luckily, that’s really manageable for me.”

Credit: NYT

Credit: NYT

The repayment pause has lasted almost as long as a standard four-year bachelor’s degree path. Here’s what to expect as the payment pause on those degrees wraps up:

When does the forbearance period end?

Student loan repayment requirements have been in a state of flux for the past 3.5 years, with both former President Donald Trump and President Joe Biden moving to implement repayment holds and waive interest during that time.

Interest accrual restarted on Sept. 1, and as of Oct. 1, the pause on repayment expired. Most loan holders will be required to submit a payment this month, though the specific payment due date differs by individual borrower.

What if I can’t make my payments?

As part of a temporary “on-ramp” period, the U.S. Department of Education said it will not report delinquent loans to credit bureaus. This applies to all loans that were eligible for the payment pause, and this protection will last through Sept. 30, 2024.

However, interest will continue to accrue and payments are technically still due. As interest builds up, loan servicers may be required to increase a borrower’s monthly payment to ensure the loans can be paid off on time. If so, the servicer will send a notice of the changed monthly payment amount, according to the DOE.

What if I have defaulted loans?

Eligible defaulted federal loans have been spared from collections action as part of the pandemic loan relief. Collections on most defaulted loans will remain paused through September 2024, according to the Education Department.

For loans already in default, borrowers could qualify for the Fresh Start program. This one-time temporary program will allow eligible defaulted loans to be transferred to a loan servicer as “in repayment” status, and the default will be removed from the borrower’s credit report.

Can I lower my payments?

The Department of Education said it now offers an income-driven repayment plan called Saving on a Valuable Education (SAVE) plan. This new plan can decrease payments based on a borrower’s income and family size, even eliminating monthly payments for those making $32,800 or less per year. The plan can also put a cap on interest accrual.

Under the SAVE plan, making even periodic or partial payments lowers the amount of interest accrued each month, according to the DOE.

Other repayment plans include Income-Based Repayment (IBR), Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) Repayment. Under all plans, any loan balance remaining at the end of the repayment plan is forgiven.

What about the student loan forgiveness I signed up for?

The Biden-Harris administration announced a student loan debt forgiveness program in August 2022 which proposed canceling up to $10,000 of federal student loans, and up to $20,000 for students who had Pell Grants, for borrowers who made an annual income of under $125,000 (for individuals) or under $250,000 (for married couples or heads of households).

A Supreme Court decision in June of this year effectively killed the $400 billion plan, leaving the DOE unable to implement the one-time debt relief offered by the initiative.

A new initiative from the federal government aims to provide student debt relief to borrowers through what’s called negotiated rulemaking. This process would allow public input, via appointed negotiators, in the development of student debt relief regulations, with the end goal of allowing more borrowers to qualify for student debt relief.

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