Post-Monday, the advantageous student loan aid during the pandemic period comes to an end. Here's what debtors ought to be aware of.
When student loan repayments started again last year after a prolonged hiatus due to the pandemic, the Biden administration introduced an "easing-in" phase up until September 30, 2024. This phase shielded borrowers from the credit-harming effects of missing a payment, with loan servicers not reporting missed, late, or partial payments to the major credit bureaus.
Data from TransUnion indicates that around half of the borrowers who should have been making payments during this 12-month period have indeed made them.
The end of this phase coincides with the uncertain future of a lenient student loan repayment strategy introduced by the Biden administration earlier. Known as SAVE (Supporting Aid for Virtual Education), this strategy is currently on pause as legal proceedings take place. A hearing is set for October 15 at the 8th US Circuit Court of Appeals.
Whilst SAVE is paused, borrowers do not need to pay their monthly student loan fees. However, if SAVE is ultimately overturned by the court, these borrowers may have to deal with larger monthly payments later on.
In light of the present uncertainty, various advocate groups have petitioned the Department of Education to extend this easing-in phase. However, the department has recently told CNN that there are no plans to extend this phase.
Consequences of not repaying your student loan
Much like before the Covid-19 pandemic, loan servicers will notify the credit bureaus if a payment is not made within 90 days of the due date. After 270 days or approximately 9 months of non-payment, a loan goes into default. This may result in additional financial repercussions, such as damaging a borrower’s credit score, making it challenging to buy a car or house. Regaining good credit standing could take years. Furthermore, a borrower's federal tax refund or even a portion of their salary could be withheld.
Once in default, borrowers cannot apply for deferment or forbearance, lose access to further federal student aid, and could be taken to court by the loan holder.
Biden's student loan forgiveness initiatives
Three major student loan relief initiatives proposed by President Joe Biden have either been struck down by the Supreme Court or are currently being challenged in court.
- Biden's primary student loan forgiveness program, which would have granted up to $20,000 of debt relief to eligible low- and middle-income borrowers, was overruled by the Supreme Court in 2023.
- Biden's SAVE plan offers reduced monthly student loan payments for enrolled borrowers and faster access to loan forgiveness. However, SAVE is presently held up as legal proceedings unfold.
- A legal challenge was filed to Biden's most recent attempt at delivering student loan relief before the plan was finalized. If authorized, the Department of Education would waive accumulated interest for borrowers with federal student loan balances exceeding their initial loan amounts. Additionally, this proposal includes canceling student debt for borrowers who began repayment at least 20 years ago and those who meet existing federal debt relief program criteria but have yet to apply.
Despite these legal challenges, the Biden administration has so far approved the cancellation of $169 billion in student loan debt for approximately 4.8 million borrowers through existing student loan forgiveness programs. These measures have provided relief to public-sector employees who have made 10 years of payments, misled borrowers, and borrowers with permanent disabilities.
The ongoing legal challenges against President Biden's student loan forgiveness initiatives have brought uncertainty to the future of lenient repayment strategies. Politicians and advocate groups are closely watching the court hearings, such as the one scheduled for October 15 at the 8th US Circuit Court of Appeals, as these decisions may significantly impact the repayment plans of millions of borrowers.
Once a loan enters default due to non-repayment within 9 months, the borrower may face several financial consequences, including damage to their credit score, making it difficult to purchase a car or a house. Additionally, their federal tax refund or a portion of their salary could be withheld, and they may lose access to further federal student aid and forbearance options.
