BIG NEWS: Student Loan Borrowers Will Lose Two Debt Relief Programs in Just Days
Student loan borrowers have just days left to act before two crucial debt relief programs come to an end. As the September 30 deadline approaches, many may find themselves facing significant challenges if they do not take immediate action.
Time to Pay Attention
Michael Ryan, a finance expert and founder of michaelryanmoney.com, emphasizes the urgency: “If you’ve been relying on these programs, it’s time to pay attention. The safety net is being pulled away, and you don’t want to be caught off guard.”
The student loan “on-ramp” program, initiated during the pandemic, was designed to protect borrowers who were behind on payments or in default from adverse credit reporting and collections activities. However, starting October 1, these protections will be lifted, potentially leaving many borrowers to confront harsh realities this fall and winter.
End of the Fresh Start Program
The Fresh Start program, which allows borrowers in default to remove their loans from default status with a simple phone call, will also conclude at the end of September. According to the Department of Education, half of those eligible for Fresh Start qualify for $0 monthly payments, and 60 percent pay $50 or less.
Michael Lux, an attorney and founder of the Student Loan Sherpa, notes, “Many borrowers in default are unaware of Fresh Start, partly because the on-ramp program shielded them from the consequences of default.” Once Fresh Start ends, borrowers will face two less favorable options to resolve their default: loan rehabilitation or consolidation, both of which have significant drawbacks.
Act Now to Save
Lux urges borrowers to verify their eligibility for Fresh Start and act quickly: “The potential savings for these borrowers are significant. When you factor in credit score improvements and potential loan forgiveness, it becomes an incredible opportunity.”
While those eligible for the pandemic payment pause automatically benefited from the on-ramp program, adverse credit reporting, collection calls, and wage garnishments will resume once the on-ramp period ends. Lux stresses the importance of taking action before October 1 to avoid these repercussions.
Ongoing Legal Challenges
Adding to the uncertainty, a lawsuit threatens President Joe Biden’s SAVE repayment plans, complicating the process for borrowers interested in enrolling in income-driven repayment plans. However, it is still possible to sign up by submitting a paper application to their loan servicer. “Those interested in the SAVE plan will be placed on an interest-free forbearance while the lawsuit is pending,” Lux explains. “This time won’t count toward forgiveness, but it is a great way for borrowers to transition back to repayment affordably and protect their credit scores.”
Several Republican-led states have filed a lawsuit against the federal government, alleging that the Biden administration unlawfully attempted to cancel hundreds of billions of dollars in student loans. Missouri Attorney General Andrew Bailey, along with officials from other states, claims, “The Biden-Harris Administration is dedicated to saddling working Americans with Ivy League debt, even if they have to break the law to do it.”
Preparing for the Future
Financial literacy instructor Alex Beene from the University of Tennessee at Martin warns that the conclusion of the two COVID debt relief programs will likely make repaying debt much more challenging for borrowers. Nevertheless, he encourages them to take advantage of Fresh Start before it’s too late. “If you’ve had loans go into default, now is the time to take advantage of this. The mechanisms this program utilizes will no longer be in place, and the path will be that much more difficult after September 30.”
Michael Ryan recommends borrowers check their loan status at the studentaid.gov website and select a repayment plan that fits their budget. Setting up autopay can also help borrowers avoid default status. “Ignoring this won’t make it go away,” Ryan cautions. “In fact, it’ll probably make things worse. Missing payments now could tank your credit score, making it harder to rent an apartment or get a car loan down the road.”
He concludes with a powerful reminder: “Face this head-on, even if it’s scary.”
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