You’ve probably been hearing a lot about student loan repayments starting up again, especially with the pandemic-era pause coming to an end. It can feel overwhelming, knowing that payments will soon resume. However, there’s a piece of good news that might give you some breathing room — an important exception for student loan payments that you should know about.
September 30 Deadline Is Looming
As you already know, September 30 is fast approaching, and for many, that is a date heralding many worrying issues. If you have been worried about how you will cope with your student loan being delinquent, or even worse, in default, you are not alone. But here is the catch – there is an exception in this case that will come to your rescue and delay any adverse effects from missing a few payments for quite some time.
The Department of Education has provided a band-aid of sorts that may prevent your loans from being classified as delinquent or defaulted provided you fulfill a specific condition. This cannot be relied on for long periods, however, this could be a good respite for a prudent borrower.
The On-Ramp Program: What It Means for You
At this point, it gets fascinating. The federal government launched an “on-ramp” program which has, in effect, suspended the penalties for defaulting student loan payments from October 1, 2023, until September 30, 2024.
What does this imply? This implies that if you are not able to make any payments in this time interval, you will not be reported to any credit agencies, your loans will not be treated as overdue, and most critically, you will not be legally termed as a defaulter on that loan.
You should also bear in mind that interest will still accrue on your principal during this period, meaning that your overall amount due will increase. But this provision gives you the ability to kick the can of default as far as possible down the road, without the dreaded consequences of wage garnishments, tax offsets, or any other punitive financial measures.
Who Is Eligible for This Exception?
The primary concern prevalent in everybody’s mind is whether you qualify for this program. The answer is quite clear — all federal loan recipients are eligible for this dispense. Whether you are on an income-driven repayment, standard plan, or a deferment, this period on-ramp applies to you, as long as it is a federal loan. Regrettably, private student loans do not enjoy such relief.
If you are asking yourself, should I stop making any payments completely, keep in mind that this on-ramp is meant only for those who cannot make the payment, rather than being an incentive to not pay. Payments, where possible, are encouraged as they will decrease the principal amount of the loan and prevent unnecessary escalation in interest charges in the future.
Take Time to Breathe, But Don’t Forget About the Interest
One move that you need to bear in mind is that this on-ramp is not a carte blanche. There will still be interest accruing, and starting from October 2024, you will have to ease back into regular repayments. However, if you feel cornered today, this paradigm shift… allows for a neat opportunity to regroup without the threat of defaulting hanging over you.
Therefore, this is the right time to relax and catch your breath. You can look for other means of repaying the loans, create a financial equilibrium, or even make changes to your spending plan before the repayment of the student loans becomes an issue again.
