The Biden/Harris Administration’s student loan on-ramp period functioned like a double-edged sword.
On the one hand, it offered a year’s worth of breathing room to millions of borrowers who weren’t ready to resume repaying their student loans. On the other hand, its conclusion meant a higher monthly bill for anyone who neglected to pay the interest on their loan.
If you’re finding it difficult to fit student loan payments back into your monthly budget, this article offers practical guidance. It provides crucial advice on what to do to avoid defaulting on your loan.
Key Takeaways
- The student loan on-ramp paused repayment penalties but resumed interest accrual.
- Post-on-ramp, borrowers face serious consequences for missed or late payments again.
- If struggling financially, consider deferment, forbearance, or income-driven repayment plans.
- Professional consultation can help identify repayment strategies aligned with your finances.
Background to the Student Loan On-Ramp Period
In 2020, the Department of Education implemented its COVID-19 emergency relief initiative to help federal student loan borrowers weather the pandemic.
During this three-year payment pause, which ended on September 1, 2023, borrowers with eligible loans were placed under administrative forbearance. In addition to the pause on their federal student loan payments, they also had their loan interest charges set to 0%.
When the relief period ended, and just before monthly payments resumed, the Biden/Harris administration announced a one-year grace period of sorts. Beginning on October 1st of the same year, this on-ramp aimed to gently ease borrowers back into repaying their student loan debt. It ended on September 30, 2024.
How the On-Ramp Period Worked
If you had a loan that was eligible for the COVID-era pause, it would also qualify for the on-ramp. Like the three-year pause before it, the one-year on-ramp to repayment was lenient about missed payments.
During this period, the Department of Education refrained from reporting borrowers to the credit bureaus if they missed payments, paid late, or paid in part.
However, unlike the COVID-19 emergency relief initiative, your interest rate would no longer stay at 0%, as interest accruals on your principal resumed.
Non-Payment Consequences Are Now Back In Effect
It’s been a few months since the on-ramp period ended, meaning the consequences for failing to repay your federal student loans when due are back in effect.
If you haven’t resumed paying, your student loan will turn delinquent after 90 days of non-payment. Fail to pay for 270 days – or nine months – and you’ll default on your loan, opening yourself up to forced collections on the student debt.
Additionally, your federal student loan servicer can once again report late, partial, or non-payments to the credit agencies. Damage to your credit score can be difficult to repair, and a poor credit report can make it harder to secure financing for a car or home purchase.
Worse still, defaulting on your loan makes you ineligible for federal student aid. You won’t get relief through deferment or forbearance, let alone student loan forgiveness.
What to Do If You’re Struggling Financially
If you anticipate that your financial challenges will be temporary, you could get another pause through forbearance or deferment. Since student loan servicers know the qualification criteria for either relief option, contact yours to learn whether you’re eligible. However, don’t forget that interest will continue to accrue during a deferment or forbearance period.
Alternatively, the Education Department offers several repayment options you can use if you’re struggling to repay and haven’t yet defaulted.
Most federal loan borrowers are automatically enrolled in the 10-year standard plan. However, you can enroll in a longer-term income-driven repayment plan that caps your monthly payments at a percentage of your income.
For example, the Saving on a Valuable Education (SAVE) program caps your monthly payments at 5% of your discretionary income. It also has a 25-year repayment term and provides the option to have any debt left over by year 25 erased.
Unfortunately, this plan is facing legal challenges that are currently being ironed out in court. However, if you were previously on the REPAYE (revised pay as you earn) plan, you’ve been automatically transferred to SAVE, though your repayment status may change as legal challenges progress.
Get Expertly-Crafted Repayment Advice
Even though the student loan repayment on-ramp is over, you still have several options for repayment relief. Choosing the right one comes down to understanding what your financial situation requires and whether your chosen option aligns with your long-term repayment goals.
StudentLoanProfessor can help. Our experts are intimately familiar with the various federal loan repayment plans and their financial implications. Contact us today to get a consultation that better positions you for a debt-free future.
Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.
