During the COVID-19 pandemic, when families were forced to stay indoors, repaying student loans would have been a huge burden. The federal government took a bold step known as forbearance to ease student loan borrowers the burden of loan repayment.
From early 2020 up till mid-2023, federal student loan borrowers were allowed to skip loan payments. Now that the pandemic is totally over, when will student loans resume?
When Was Student Loan Repayment Paused?
The student loan payment was paused in March 2020 under the President Donald Trump administration. The loan payment was stopped due to the COVID-19 pandemic, which put a standstill on the economy and many businesses.
The paused federal loan repayment was extended several times under the Donald Trump administration and now Joe Biden. The payment is set to resume soon after the Supreme Court ruled against its further extension.
Student loan borrowers who have stopped payment for about three years ago and those who graduated during the pandemic period are to resume payment.
When Do Student Loans Repayment Resume?
The Supreme Court ruled against the extension of the student loan payment and student loan forgiveness plan of the President Joe Biden administration in July this year.
The student loan payment was set to resume in September, while borrowers are expected to resume payment in October. Interest will start accruing on your paused student loan as of October this year.
Student Loan Payment Resumed. What Next?
Resuming payment all of a sudden for your student loan may pose a big challenge, but here is another good news. President Joe Biden introduced three initiatives to ease the burden of student loan borrowers who have stopped payment for over three years.
SAVE Payment Plan
The new SAVE plan is added to the previous IDR plans. The SAVE plan based your student loan monthly payment on the percentage of your discretionary income. Your monthly loan payment under the IDR plan is 10% of the discretionary income.
Your discretionary income is the difference between your total income and 225% of the federal poverty guideline. This means that you will minus your annual total income from the federal poverty guideline for your size of household to get your discretionary income.
12-Month On-Ramp Payment
This initiative gives you the liberty to adjust to resume paying your student loan. You are allowed to pay any amount you have without facing the consequences of late payment or default payment.
The On-ramp payment will last for one year during which your missed or partial payment activities won’t be reported to the credit bureaus.
Fresh Start For Borrowers In Default
Borrowers whose payment has entered default before loan payment was paused in 2020 are allowed to start afresh. This means that you are forgiven for facing the normal consequences that are associated with your loan payment entering default. The Fresh Start program is proposed to last for one year.