Student loan payments to resume after 3-year break

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Student loan payments to resume after 3-year break

Federal student loan borrowers will be required to resume making loan payments in the next few weeks, following a longer-than-three-year break from loan bills.

The student loan forbearance, which halted payments and interest accrual since March 2020 for most of the nation's 43 million borrowers, is officially over. It began winding down in September, when interest began to rise again. Most borrowers will have a bill due in October.

What's ahead for people with student loans?

The Education Department announced an extended return-to-normal period for borrowers starting in September and running through next year.

The Education Department won't place the loans of borrowers who miss payments into default and consider the loans delinquent during the 'on ramp' period. The department also said it will not report any missed payments to the credit bureaus or debt collection agencies during this period.

If you are unable to contact your loan servicer regarding your October payment, you should expect a long wait time. All loan servicers warn of high call volume and longer-than-normal waiting times, and some borrowers reported spending hours on the phone before being connected with a customer service representative.

Betsy Mayotte, the president and founder of The Institute of Student Loan Advisors, a nonprofit organization providing free advice to borrowers, said in a statement.

Student loan payment pause ending: What to know

Here's what you need to know about restarting payments.

How can borrowers prepare for restarted student loan payments?

Experts say you can - and should - prepare for student loan payments to resume.

For starters you should find out if you will have to work with a new loan servicer. The Consumer Financial Protection Bureau estimates that more than 40% of borrowers may have to deal with a new servicer when payments resume due to a large number of loan transfers during the pandemic.

Other ways to prepare include checking your loan balance, choosing a repayment plan, starting a budget, and exploring what other forgiveness or federal assistance options you may be eligible for.

If you're worried about paying your bills when they reset, it's especially important to contact your loan servicer to discuss options - and to see if you qualify for one of the four income-driven repayment plans offered by the Education Department.

In June, the U.S. Supreme Court struck down Biden's marquee plan to forgive up to $20,000 of student loan debt per borrower, paving the way for a different plan to cancel a large swath of debt.

The Biden administration is currently trying to cancel student loan debt through the Higher Education Act, but experts say this process will take time. Loan bills will be due soon, before any potential forgiveness would come from this new plan. Like Biden's old forgiveness program, this new program may face legal challenges that could further delay the timeline.

The average federal student loan payment before the pandemic was under $400 per month and the median payment was $222. The typical borrower will owe between $210 and $314 a month when payments resume.

For those who have already signed up for the new SAVE repayment plan, however, that amount will likely be much lower.

Research shows borrowers are expected to struggle when payments turn back on. The survey by Morning Consult found 62% of borrowers anticipate missing at least one payment when they resume.

While payments were halted over the last three years, the cost of living has skyrocketed, and many borrowers have had to put the money they would have been using to pay their loans toward basic necessities.

How much of your income should go to student loan each month?

How might a student loan reset be harmful to your credit score?

All information provided on this page is accurate as of the published date.