Student loan payments were put on pause during the COVID-19 pandemic, but now that the government has declared that the public health emergency is officially over, student loan payments will resume on Oct. 1. Interest started accruing earlier this year on Sept. 1 -- meaning that the amount you owe has already begun to increase. It's expected that 1 in 5 borrowers will have payments of upwards of $500 once payments officially resume on Sunday.
These payments are expected to put extra strain on those borrowers. A survey from Credit Karma indicates that 45% of borrowers expect to go delinquent when student loan payments resume soon. With many facing tough financial decisions this fall and some making payments for the very first time, it's important to understand all of your options when it comes to your student loans.
This deadline comes in the midst of a potential federal government shutdown, and lawmakers have until this Saturday, Sept. 30, to strike a deal on how to continue funding the government. If Congress cannot come to an agreement, the government shuts down on Oct. 1, the same day that student loan payments resume. However, if you're a borrower, don't get your hopes up about payments being put on hold again during any shutdown. If the government shuts down, you'll still be on the hook for your student loan payments.
For more, here's what would happen to your Social Security payments if the government shuts down at the end of this week.
When will my student loan payments start again?
While student loan payments will officially resume this Sunday, Oct. 1, your specific payment date will be up to your loan servicer, so be sure to know your loan servicer's specific guidance on when you will need to begin repaying your loans. Whether you're a student loan veteran or it's your first time paying your loans, you need to find out who your student loan servicer is. Essentially, it's the company in charge of making sure you pay your student loans, and who you should talk to if you think you're going to be behind on your payments.
Regardless of whether or not you're a student loan newbie, listening to expert advice for borrowers is always a good idea when it comes to making decisions about your student loans. Arming yourself with good information is helpful when making decisions that might feel overwhelming.
What happens if I decide not to pay my student loans?
There is a timeline for what could happen if you decide not to repay your student loans. It's not pretty and it includes some serious consequences.
But before we get to those consequences, let's break down exactly what happens if you don't pay your student loans.
First, failing to pay your student loans can have the same consequences as failing to pay your credit card bill. Your credit score may take a hit if you allow your loans to become delinquent or if you default on your student loans.
Let's say that you stop making your monthly student loan payments. The first day after you miss a payment on your due date, your loan becomes delinquent. According to the Federal Student Aid website, that amount will be considered delinquent until it is paid off.
If you allow your student loan to become delinquent, and it remains delinquent for 270 days, your loan will move into default. Defaulting on a loan means that you have failed to pay your loan as you agreed to when you took out your loan. Your servicer is not going to just let you default without communicating with you -- it should make several attempts to contact you before your loan goes into default.
Once your loan goes into default, there are more consequences. The federal government is serious when it comes to reclaiming its money. The government might seize your tax return or garnish your wages to help pay off your loan. Having your wages garnished essentially means the government takes a bit of your monthly income to pay back the loans. Your credit score will also take a hit if you allow your loan to go into default.
Most of these negative consequences for not paying your student loan will be temporarily suspended during the "one-year on-ramp" for restarting payments.
What is the one-year on-ramp for student loan payments?
When President Joe Biden announced the end of the student loan payment pause, he instituted a one-year on-ramp period that will reduce or eliminate many of the negative consequences of not paying your student loans.
The on-ramp is a 12-month period beginning Oct. 1 and lasting until Sept. 30, 2024. During this year, some of the most serious consequences of not paying your student loans will be paused. That means no delinquency, default, hits to your credit score or any other of the unfortunate things that can come from not paying your loans.
However, borrowers who miss student loan payments should proceed with caution. Just because the consequences of not paying your loans have been paused, that doesn't mean that the balance of your loan money won't keep increasing due to additional interest. Although missing a payment under the on-ramp feels like it's consequence-free, it really isn't. Once the on-ramp is over, you will be on the hook for any interest that you accrued over the year.
What should I do if I can't afford to pay my student loans?
If you can't afford to pay your student loans, your best move is to contact your lender and ask about adjusting your repayment plan.
Your lender could suggest a few options, including deferment or forbearance. Each option lets you temporarily postpone or reduce your student loan payments.
With deferment, no interest will accrue to most loan balances. With forbearance, interest will accrue on your loan balance. Deferment requires a qualifying event, such as becoming a student, enlisting in the military or losing a job. If you don't qualify for deferment, forbearance can pause payments for up to a year. Neither deferment nor forbearance will impact your credit score.
If deferment or forbearance won't work for you and your loan, don't worry, you still have other repayment options that may help you keep making progress on paying off your loans at a level you can afford.
What are income-driven repayment plans?
Income-driven repayment plans are programs that adjust the terms of your loan based upon the constraints of your income.
Four income based repayment plans are currently available: the Pay As You Earn repayment plan, or PAYE; the Income-Based Repayment plan, or IBR; the Income-Contingent Repayment plan, or ICR; and the Saving on a Valuable Education plan, or SAVE. The SAVE plan is the newest addition to this lineup and is the Biden administration's strategy to help borrowers manage their loan repayments by closely tying payment size to a borrower's income and family size.
For more, here's a closer look at the SAVE plan.
How will a government shutdown impact my student loan payments?
With an Oct. 1 government shutdown looking increasingly possible, you're likely wondering what that could mean for student loan repayments.
The short answer is your student loan payment will still be due, as repayments are handled by student loan services and not the US Department of Education. That doesn't mean as a borrower, however, a shutdown won't touch you. With a short-staffed Department of Education, you could expect delays when seeking help from the agency.
And, longer term, a shutdown could have repayment consequences. On Sept. 25, White House Press Secretary Karine Jean-Pierre said the Biden administration anticipates that if the shutdown runs longer than a few weeks, it "could substantially disrupt the return to repayment effort."
It could also affect aid you intend to apply for in the next school year: A shutdown could delay the rollout of the 2023-24 FAFSA form, expected in December.
The bottom line on missing student loan payments
When you find yourself in a tricky situation involving your student loans, the best thing to do is contact your loan servicer to learn about all of your options to manage your student loans in a more sustainable way. The transition back into paying your student loans might seem scary, but by arming yourself with information and a plan you can reduce your anxiety and stress.
For more, watch out for these student loan scams and who is getting refunds from loan scams.