The recent debt ceiling deal finally puts an end to the pause on student loan payments and interest that has been in effect for more than three years. However, there's quite a bit of confusion surrounding when student loan payments will actually be due and what borrowers can do to prepare themselves. Here's a quick rundown of some of the important details to know.
When will student loan payments restart?
As mentioned, the recently passed debt ceiling deal requires the student loan repayment pause to end after Aug. 30. However, this doesn't exactly mean that your payments will start the next day.
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Recently, the Department of Education confirmed that student loan payments will be due starting in October. So, at the earliest, you have about three and a half months before your first loan payment will be due.
Interest restarts right away
While student loan payments won't actually be due until October, interest will start accumulating on student loans beginning Sept. 1. This is a big deal -- after all, borrowers pay $5 billion in student loan interest per month.
Is loan forgiveness coming?
The debt ceiling deal set a concrete deadline of Aug. 30 for the payment and interest pause to end, so the Supreme Court's decision on loan forgiveness no longer has anything to do with when student loan payments will restart.
However, this is certainly an issue on the minds of millions of student loan borrowers, and that's especially true with the payment pause now definitively set to expire. The Supreme Court is expected to rule on the legality of President Biden's student loan forgiveness plan any day now, and if it can proceed, as much as $10,000 per borrower ($20,000 for borrowers who received a Pell Grant) in loan forgiveness could be coming soon.
Other new student loan relief measures
It's also important to note that the student loan relief plan wasn't just about debt forgiveness. There are several other provisions in the president's plan that have nothing to do with the Supreme Court's decision and could provide serious relief to borrowers worried about their payments restarting.
For example, income-based repayment plans previously capped borrowers' required monthly payments at 10% of discretionary income. Not only does the new student loan plan lower this to 5% of discretionary income for undergraduate loans, but it increases the definition of discretionary income. So, if you enroll in an income-based repayment plan like Pay As You Earn, your required monthly payments could be far lower than before the pause.
Also, the student loan relief plan has a provision that prevents unpaid interest from causing your loan balance to increase if your required minimum payment doesn't cover it. Before the payment pause, you may have heard horror stories of people who borrowed $50,000, made loan payments for years, and now owe $60,000, or similar situations. Under the new plan, this won't happen.
Take a deep breath
The bottom line is that student loan payments and interest restarting is likely to create a financial burden for millions of Americans, but it might not be as much of a shock as you think, especially if you can take advantage of the improved income-driven repayment options. So, take a deep breath, and use the time between now and when your first payment is due to explore your repayment options, get in touch with your loan servicer, and come up with a plan to incorporate student loans into your budget again.
