In response to the Supreme Court’s landmark decision striking down President Joe Biden’s student loan forgiveness plan, the administration announced a series of measures designed to provide new debt relief to borrowers. Among these initiatives is what Biden is calling a year-long “on ramp” to student loan payments resuming.
Republicans opposing Biden’s newest student debt relief measures are characterizing this new 12 months of relief as a backdoor extension of the student loan pause, which is set to end in less than two months. But it’s a bit more complicated than that.
Here’s the latest.
Biden Is Bound By Law To End The Student Loan Pause
The student loan pause, which has been ongoing since March 2020 after multiple extensions by the Trump and Biden administrations, is officially set to conclude by the end of August. The moratorium has stopped payments and frozen interest accrual for most federal student loan borrowers, and suspended collections efforts against borrowers in default on their federal student debt.
Advocates for borrowers had hoped that President Biden could extend the student loan pause again if the Supreme Court struck down his mass student loan forgiveness plan, as it did last week. But the debt ceiling bill Biden negotiated with House Republicans included a provision codifying the end of the student loan pause at the end of August. As a result, student loan payments will be resuming, and barring a new national emergency (separate from Covid), Biden is prevented by law from issuing another extension.
Catastrophic Consequences Associated With Resuming Student Loan Payments
Borrower advocacy groups and federal watchdog agencies have warned that there could be disastrous consequences for millions of Americans when student loan payments resume. Never in the history of the federal student loan system have 40 million borrowers simultaneously resumed repayment after a three-year hiatus. Many borrowers’ financial circumstances have hanged during this time, as has the Education Department’s vast student loan servicing system, and inflation has been at historically high levels.
“Borrowers with large balances relative to their income may find their scheduled monthly student loan payments especially difficult to manage if they are not enrolled in income-driven repayment (IDR) plans when the payment pause ends,” warned the Consumer Financial Protection Bureau in a report last month. “Student loan borrowers who are already having difficulty with their other payment obligations are especially likely to struggle with their student loan payments… Borrowers deprioritize their student loan payments relative to other debts, suggesting that some borrowers who are struggling but not currently behind on other payments may still struggle with the return of their student loan payments”
New ‘On-Ramp’ Program Will Extend Some Debt Relief Associated With Student Loan Pause For 12 Months
In response to these concerns and last week’s adverse Supreme Court ruling, Biden announced on Friday that there would be a 12-month “on-ramp” initiative as borrowers transition from the student loan pause back to the resumption of repayment. The on-ramp year will serve as an extended grace period, during which borrowers will not be penalized for missing payments.
During the on-ramp period, “missed, partial, or late payments will not lead to negative credit reporting, default, or loans being sent to collection agencies,” said Education Secretary Miguel Cardona in a statement over the weekend.
On-Ramp Initiative Does Not Mean Student Loan Payments Won’t Be Due
While the on-ramp program will prevent borrowers from experiencing negative consequences associated with missed payments, this is not the same thing as an extension of the student loan pause. Interest will start accruing again on federal student loans in September, and payments will become due in October.
“Borrowers who can make payments should do so, as payments will be due and interest will accrue during this transition period,” warned Cardona. They just won’t experience negative consequences (other than interest accrual) if payments are missed.
Missed Payments During Transition Period Will Not Count Toward Student Loan Forgiveness
Under federal law, the 41-month student loan pause period can count toward student loan forgiveness under programs like Public Service Loan Forgiveness and Income-Driven Repayment, even if no payments have been made. The months of suspended payments can be credited toward loan forgiveness terms as if the borrower had been making payments.
But that will not be the case for the one-year on-ramp period. “Missed payments will not count toward loan forgiveness under any of the income-driven repayment plans or Public Service Loan Forgiveness,” said Cardona. In order to continue making progress toward loan forgiveness under IDR and PSLF, borrowers would need to make qualifying payments.
Fresh Start Program Will Still Protect Defaulted Student Loan Borrowers
Separately from the on-ramp initiative, the Biden administration’s Fresh Start program will provide borrowers in default on their federal student loans with a one-time, temporary pathway to return to good standing. Restoring defaulted federal student loans to good standing is critical in order to access key federal student loan forgiveness programs, such as Public Service Loan Forgiveness or the benefits of the IDR Account Adjustment.
The Fresh Start program will be available for one year after the payment pause ends, just like the on-ramp transition period. And during the Fresh Start period, borrowers in default will continue to be shielded from collections efforts, financial penalties, and negative credit reporting associated with defaulted federal student loans. In that regard, key elements of the student loan pause are effectively extended for these borrowers.
Republicans Accused Biden Of A Backdoor Extension Of The Student Loan Pause
In addition to providing borrowers with the new on-ramp initiative, President Biden promised to find a new way to provide student loan forgiveness to borrowers in response to the Supreme Court ruling.
Congressional Republicans were swift to criticize Biden, accusing him of finding a backdoor route to extend the benefits of the student loan pause.
“Taxpayers just got sucker punched – again – by this administration,” said Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) in a statement on Friday. “Today, President Biden announced that taxpayers will be forced to pay for the costliest regulation in our nation’s history, which will only exacerbate inflated college costs and excessive debt balances. Additionally, Biden confirmed plans to ignore the law and extend the repayment pause while also ignoring the Supreme Court and still trying to do blanket loan forgiveness. What the President is pushing is illegal, inflationary, and irresponsible.”
Further Student Loan Forgiveness Reading
Biden Announces ‘Plan B’ For Student Loan Forgiveness: Key Details
6 Key Student Loan Forgiveness And Repayment Dates To Write Down Now
30 Million Borrowers May Face New Problems As Student Loan Pause Ends
4 Big Student Loan Updates When Payments Resume (And They Resume Soon)
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