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Student loan repayments to soon resume; here’s what borrowers need to know
Federal student loan repayments will finally resume for 43 million borrowers at the end of August after a 3-year pause. Many are expected to struggle to make payments on top of high inflation, however. FOX 26 Consumer Heather Sullivan shares some smart sense on how you can reduce your payments.
HOUSTON - Federal student loan repayments will resume for 43 million borrowers on September 1, after a three-and-a-half-year pause.
PREVIOUS: Student loan borrowers prepare to resume payments, await possible forgiveness
The Consumer Financial Protection Bureau expects one in five borrowers to struggle to make payments amid high inflation.
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Student loan debt payments back on again
The debt deal created some genuine movement on the issue of President Biden's bid to forgive $400 billion in student loans - the payments on which have been suspended since the pandemic, but as a part of the debt deal, must begin again. Senator John Cornyn calls the Biden forgiveness plan "student loan socialism" and predicts the Supreme Court will rule the president lacks the authority to offer it.
The debt ceiling bill passed by Congress established that Federal student loan payments, and accruing interest, will resume September 1.
"We're not able to pay, we're not going to," said student loan borrower Jacque Abron.
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Many borrowers like Jacque Abron say they won't be able to afford to resume their federal student loan payments.
"No one has the money," Abron said. "I’m a teacher in Texas, so we’re already underpaid. I just won’t have the funds to pay a $400 or $500 payment."
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House passes bill that repeals President Biden's plan for student loan forgiveness
FOX's Griff Jenkins has more on what it all means for students.
"We’re going to see a mass default. I tell everyone to bulletproof themselves," said Alan Collinge, founder of the advocacy group StudentLoanJustice.org.
Collinge says he expects defaults to be much higher at 70%. Student Loan Justice is calling for legislators to restore the right to discharge federal student loans in bankruptcy court.
"Nobody wants to have to file for bankruptcy. But simply having the leverage of bankruptcy on the borrowers' side is what's most important, and we're not going to have that when these payments are turned back on," said Collinge.
Abron, a member of the group, agrees.
"It’s not like we’re just running up our student loans, and we want to discharge them. That’s not the case. It’s struggling students," Abron said.
The Supreme Court is expected to rule on President Biden's loan forgiveness plan soon, which could erase up to $20,000 for those who received Pell Grants, and up to $10,000 for borrowers earning less than $125,000 a year.
RELATED: Can’t afford to resume federal student loan payments? Here are options
Borrowers can start preparing for loan repayments now. Student loan expert and founder of BenElevate, Inc. Jason DiLorenzo says the first step is setting up a budget to include the payments.
Loan servicers changed for 14 million borrowers last year. Borrowers who haven't been notified can log in to My Federal Student Aid to find their current loan servicer and expected payment.
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If you cannot afford to resume your payments, you can apply for a Graduated Repayment Plan, an Extended Repayment Plan, a Pay as You Go Plan, a Revised Pay as You Go plan, an Income-Contingent Repayment Plan, or an Income-Driven Repayment Plan, which can cut payments as low as zero.
"The income-driven loan plans have 20 years of forgiveness attached to them, 20 or 25 years. So if you’re paying based on your income for 20 or 25 years, and you still have outstanding debt, it gets forgiven at that point, whether you work in service or not," explained DiLorenzo.
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Money moves to help save on the cost of college
Parents are celebrating their high school graduates, but with all that pride comes concerns about the cost of college.
DiLorenzo also says applications for Public Service Loan Forgiveness are currently moving much smoother.
"The PSLF limited waiver came out in the first week of October 2021. So at that point, 16,000 had gotten PSLF, about $1.25 billion," said DiLorenzo. "Today we’re at between 650,000 to 700,000 borrowers with PSLF granted already."
Borrowers already in default can enroll in a temporary program called Fresh Start, which lets you get your loan back in good standing, build your credit, and sign up for an income-driven repayment plan.