The United States Department of Education has big news for millions of student loan borrowers by announcing a temporary three-month halt on collections for federal student loans. This waiver helps to lighten the transition, with the COVID-19 payment pause recently expired, for borrowers in general who may struggle to start making payments again.
Background on the end of the COVID-19 payment pause
Federal student loan borrowers have been accorded a pause in repayment, interest accrual, and collections since March 2020 because of the COVID-19 pandemic. This unprecedented measure was extended several times, providing critical financial relief to approximately 45 million borrowers while they attended to other pressing financial obligations sans the immediate burden of student loan payments. That said, as of October 2023, this is officially now ended, and borrowers were required to go back to their regular monthly payments.
The transition back to repayment was very grueling for many. With mounting living costs and economic uncertainties, some borrowers were not ready for the financial burdens kicking in after a three-year pause. In this regard, the Department of Education introduced a temporary “on-ramp” program whereby, through it, borrowers would not face adverse credit consequences for missed payments until September 30, 2024.
The three-month collections pause
Accordingly, a three-month halt of collections activities has been issued for those who may fall behind in order to ease the transitional period for the borrowers. This pause is of particular benefit to these individuals when falling behind on loan repayments because of financial hardship.
During this reprieve period, the collection agencies will not pursue those borrowers who default on their repayments; rather, it gives them extra time to get themselves financially fit and avoid immediate consequences like wage garnishment or tax refund interceptions. The move just cushions the borrowers from these changes in repayment requirements.
Implications for borrowers
A few implications of this three-month collections pause for borrowers are as follows:
- Stopping defaults: During this period, delinquent borrowers will not be reported. That means they will evade the implications for default, which they are usually recorded after nine months of missed repayments.
- Access to support: The Department of Education encourages borrowers to avail themselves of options like IDR, which may be more affordable, given that amounts to be repaid are determined on an income level consideration. But today, most borrowers experience delays in enrolling in such plans due to legal challenges related to new options that have been proposed.
- Future relief: The Biden administration is still continuing to pursue avenues that can help broader student loan forgiveness and relief programs, which, in turn, may benefit many borrowers in the future. Indeed, recent announcements have indicated continuing efforts to expand existing forgiveness programs such as PSLF, introducing new initiatives aimed at debt burdens reduction.
Addressing repayment challenges
As the temporary pause on collections is nearing an end, borrowers should be proactive regarding their student loan obligations. Here is what they can do:
- Stay informed: Borrowers should keep checking communications from their servicers and the Department of Education on changes to their repayment options or additional measures that may be introduced for relief.
- Avenue of repayment: Where the burden of monthly debt obligations becomes somewhat insurmountable, borrowers can apply for deferment or forbearance as eligibility allows them.
- Seek financial counseling: Most organizations offer financial counseling at no cost or a meager fee, which shall assist in drawing up a budget to service the student loan debt in the most appropriate manner.
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