On June 30th, millions of students waited with abated breath to hear if the Supreme Court upheld President Biden’s initiative to wipe out up to $20,000 in student loan debt. The Supreme Court’s decision did not go in their favor, which affected more than 43 million Americans who owe $1.64 trillion in federal student loans. And get this – the average balance is a whopping $46k. To add insult to injury, Congress recently passed a law preventing further extensions.
Right after the announcement, President Biden disclosed plans to create The Save Plan, an alternate route to debt relief using the Higher Education Act. But this strategy, if it ever sees the light of day, may take years longer than the original plan.
But wait, there is a bright side
In addition to the bad news, there was a bit of a silver lining. President Biden also announced a new break once the temporary pause ends on October 1st, according to Vox. People who cannot afford payments will get a temporary 12-month reprieve through September 30, 2024.
During this time, missed loan payments will not harm a borrower’s credit and the threat of default will be temporarily removed. But interest will begin to accrue for everyone on September 1st— whether you pay the loan or not.
Delaying your loans for another year is probably not a sound strategy when the amount of interest during that time will boost the amount you owe. You should usually only consider this strategy if you are in dire straits should you take advantage of this year-long amnesty.
Student loan debt has never been higher
The amount of student debt in 2020 totaled nearly $1.6 trillion, more than twice the amount outstanding in 2008 ($600 billion), according to the Peter G. Peterson Foundation. In fact, student debt is now the second-largest source of household debt, trailing only mortgages. Is it any surprise that more adults are burdened with student loans today as the cost of education continues to skyrocket?
Source: Education Data Initiative
The potential financial fallout
When interest payments resume on September 1st and loan payments begin a month later, the average amount is expected to be between $200 and $500 per month. This will take a nice chunk out of your earnings and could cause serious hardship, especially if you are already struggling in today’s inflationary environment. The fact is, finding the funds could feel like an impossibility.
As a result, many people are doomed to fall into- or fall deeper into- debt. Fortunately, there are ways you can try to make payments more manageable.
According to Credit Karma, you may be able to:
- Contact your loan servicer to discuss your options
- Change your repayment plan
- Look into consolidating your loans into a lower monthly payment
- Check into loan forgiveness options
What to know about resuming payments
You will receive advance notice of when to start remaking payments, along with the payment amount and monthly due date. The US Department of Education will inform borrowers at least 21 days in advance.
The amount you owe should remain the same because you haven’t accrued interest since the pause began—unless you made payments during that time. To see how much you owe and what you are responsible for every month, log in to your account on your loan servicer’s website.
Unless you choose otherwise, you will probably be placed on a standard repayment plan, which means you will likely pay a fixed amount of at least $50 every month for up to 10 years. Other payment plans may be available if the amount falls beyond your means.
According to BankRate, three student loan servers have cut ties with the Department of Education. If you are one of the roughly 16 million borrowers affected by this change, your loans will switch hands. You can find alternate places to send payments here.
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Consequences if you can’t afford student loan payments
If you are thinking that default is your only option now and likely after the year hiatus is up, it is important to first consider the repercussions:
- The balance of your loan, plus the interest, becomes due immediately
- You may no longer receive deferment or forbearance
- Tax refunds and federal benefit payments (like social security) could be garnished
- Your loan holder may take you to court
- You could lose your home
Help is available through the Fresh Start initiative if you already have loans in default. This action will return your loans to good standing before payments resume.
Your financial situation could go from bad to worse
Even before the pandemic, more than 1 million people defaulted on student debt every year, according to Vox. President Biden’s one-year grace period simply delays the crisis for people in deep financial trouble. Kicking the can down the road is a temporary fix, not a permanent solution.
Resuming payment on your student loans will likely make it harder for you to keep up with your regular expenses while paying down your balance. So, what can you do when the odds are stacked against you? The best solution is to stop letting debt rule your life.
Debt settlement could help you pay off your credit card debt, and make your overall finances easier to manage. National Debt Relief could get you on the path to financial freedom so that you’re prepared for unpleasant surprises like the resumption of student loan payments.
Get your finances back on track
If you owe $10k or more in debt, National Debt Relief can help you resolve it in as little as 24-48 months. And since it can also take its toll on you mentally and physically, our holistic approach supports you every step of the way.
Your experience begins with a free initial consultation. You will then work with a Debt Specialist to determine an affordable monthly payment amount that will be deposited to fund an escrow savings account in your name.
Once enough money has accumulated in your escrow account—which typically takes a few months—we begin contacting lenders to negotiate a lower amount. In the event the lender agrees to the offer, we will then ask you to release enough funds from your escrow account to cover the settlement. This generally continues until all of your enrolled debt has been addressed.
Many people will suffer financially from the resumption of student loan payments. If you fall into that category, use the information above to navigate your options. National Debt Relief is also a valuable resource to help you make the right financial decisions for your situation now and down the road.
Now take a deep breath, and don’t let this financial challenge affect your mental and physical health. One way or another, this too shall pass.