() — After a hiatus of more than three years, people with federal student loans will have to resume paying their installments starting in October.
The Biden administration had sought to cancel up to $20,000 of student debt for millions of borrowers before payments resumed, but the forgiveness program was struck down by the Supreme Court on Friday and will not take effect.
Payments were due to resume in October and interest would start adding up Sept. 1, regardless of the Supreme Court’s decision on student loan forgiveness.
What should borrowers do now?
Borrowers typically receive account statements from their loan servicer a few weeks before their due date. Not all payments are due at the same time of the month.
The Department of Education said it will communicate directly with borrowers and will intensify its communication with student loan servicers before payments resume.
Student loan experts recommend that borrowers contact their servicer with any questions about their debt as soon as possible, especially if they are interested in enrolling in a income-based repayment plan. These plans, which set premiums based on income and family size, can lower monthly payments, but people who apply must submit some documents.
Borrowers will also have to reauthorize automatic debits for their monthly loan payment, even if they authorized withdrawals before the pause began.
The National Association of Student Aid Servicers cautioned that borrowers should be patient when contacting their student loan servicer, as it could be overwhelmed with a high volume of inquiries at this time.
“You may not be able to reach your manager on the phone the first time you call, and you may have to call multiple times before you can,” indicated the group.
People with federal student loans can check the Federal Student Aid website for up-to-date information on the resumption of payments.
Some borrowers may be at risk of default
Some borrowers may find it difficult to resume monthly payment on their student debt, which used to be between $200 and $299 before the pause was implemented, according to the Federal Reserve.
According to a recent study of the Consumer Financial Protection Bureauthere are now more people with student loans behind on other types of obligations than before the covid-19 pandemic.
The report also notes that about 1 in 5 student loan borrowers have at least two risk factors that suggest they could struggle when scheduled payments resume: being delinquent on pre-pandemic student loan payments or having multiple servicers of these loans.
Once payments resume, many people may be confused about how much they owe, when to pay, and how. Millions of borrowers will also have a different servicer for their student loans since they last made a payment. Some people may have been at school when the break started and are going to pay for the first time.
The pause on federal student loan payments was initially put in place in March 2020 to help people experiencing financial hardship due to the pandemic. It was extended a total of eight times under the Biden and Trump administrations, but a law passed in early June to address the debt ceiling officially prevented the pause from being extended again.
From an employment standpoint, the economy has largely recovered from the pandemic-related effects. In May there were 3.7 million people working more than in February 2020.
But there are some weak points. Major layoffs were recently announced at big companies like Disney and Amazon. Earlier this year, the collapse of Silicon Valley Bank, the biggest troubled bank since the 2008 financial crisis, triggered a regional banking crisis. And inflation remains high, but it is cooling off after reaching its highest level in 40 years last year.
