Title: Biden Administration Implements “On Ramp” to Repayment as Education Debt Payments Resume
Since the onset of the COVID-19 pandemic and the presidential term of Donald Trump, most borrowers have been granted relief from making payments on their education debt. However, as the pandemic-era relief policy comes to an end in October, concerns arise regarding borrowers’ ability to readjust to student loan payments.
Consumer advocates have expressed that many borrowers are likely to face difficulties in resuming payments due to lingering financial fallout from the pandemic. Persis Yu, deputy executive director at the Student Borrower Protection Center, emphasized that while the risk from the virus may have diminished, the financial consequences persist.
The Consumer Financial Protection Bureau has warned that approximately 1 in 5 student loan borrowers exhibit risk factors that could lead to struggles in meeting their bills. In response to these concerns, the Biden administration is implementing a 12-month “on ramp” to repayment. During this period, borrowers will be shielded from severe consequences for falling behind on their payments.
As part of this repayment plan, late payments will not be reported to credit bureaus, and borrowers will be able to avoid normal collection activities, such as wage and retirement benefit garnishments. Mark Kantrowitz, a higher education expert, explains that several lenders managing federal student loans, including Navient, the Pennsylvania Higher Education Assistance Agency (FedLoan), and Granite State, halted operations during the pandemic pause.
However, as many as 4 in 10 student loan borrowers will be transferred to different loan servicers by the fall, according to the Consumer Financial Protection Bureau. Borrowers who were previously serviced by Granite State will now be managed by EdFinancial Services, and Great Lakes Higher Education accounts should be handled by Nelnet. Furthermore, Navient’s borrowers will be moved to Maximus Federal Services/Aidvantage. Borrowers can check for their new servicer at StudentAid.gov.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, assures borrowers that the transition to a new loan servicer should require minimal action on their part. Some borrowers may need to create an updated online account with their new company, but they would have received communication instructing them on the necessary steps.
Additionally, borrowers enrolled in automatic payments, which usually offer interest rate discounts, may need to re-enroll with their new servicer. It is crucial for borrowers to ensure that their new servicer has their updated contact information, as details may have changed during the Covid pandemic.
For borrowers enrolled in the same repayment plan as before the pause, their monthly bill may remain unchanged, with the average payment amounting to around $350. However, those on income-driven repayment plans may experience a different monthly bill if their income has fluctuated since March 2020. Income-driven repayment plans limit payments to a percentage of discretionary earnings.
Notably, the Biden administration’s new SAVE plan aims to reduce borrowers’ monthly payments to just 5% of discretionary income, representing the lowest obligation to date. While some benefits will be in effect when payments resume, others will only be implemented next summer due to the timeline of regulatory changes.
To determine the monthly bill under different repayment plans, borrowers can utilize the calculators available at Studentaid.gov or Freestudentloanadvice.org.
As the October deadline approaches, borrowers will need to prepare for the end of the relief policy and the resumption of education debt payments. The Biden administration’s “on ramp” to repayment aims to ease the transition, providing borrowers with time to get their finances in order while shielding them from immediate repercussions. Nonetheless, consumer advocates stress the ongoing challenges faced by borrowers as the financial consequences of the pandemic persist.