As student loan payments resume in just a few weeks, the Education Department has been alerting borrowers to several important dates and deadlines. And these critical dates are beginning to stack up, potentially leading to confusion for borrowers.
This week, the department added yet another deadline for borrowers related to the return to repayment. Here’s what borrowers need to know.
Student Loan Pause Ends This Month
The student loan pause officially ends at the end of August after more than three years. The moratorium suspended payments, froze interest, and stopped collections for most federal student loan borrowers in response to the Covid-19 pandemic.
But after multiple extensions enacted by former President Trump and then President Biden, the pause is coming to an end. Federal spending legislation that Biden signed in June to avert a debt ceiling crisis codifies the conclusion of the student loan pause, ensuring that payments will be resuming. Biden is unable to extend the pause again, absent a new national emergency.
Student Loan Payments Resume Later This Summer
After the student loan pause ends on August 31, interest will immediately start accruing the next day — September 1. For most federal student loan borrowers, interest rates are fixed at the time of disbursement, so interest will revert back to those fixed rates.
Student loan payments will then start up again starting in September. However, it will take some time for loan servicers to generate billing statements. And then borrowers must be given a sufficient time window to make those payments after the bills are sent out. So the first payment due dates will be in October.
Important September Considerations As Student Loan Payments Resume
If the student loan pause ends in August, and payments are first due in October, what does that mean for the month of September? In mass notices sent to borrowers this week, Education Department servicers provided some answers.
“To provide all borrowers with a standard amount of time to prepare to transition into repayment, the U.S. Department of Education (ED) has directed us to apply an administrative forbearance to your student loan account for the month of September 2023,” says an email sent to borrowers by Nelnet, a major student loan servicer. An administrative forbearance means no payments will be due that month.
The notice goes on to explain that borrowers can opt out of this administrative forbearance and begin payments in September rather than October. But to do so, they must notify their loan servicer by August 31.
Borrowers may want to opt out of the administrative forbearance because of interest accrual. “Please be aware that interest will accrue on your loan balance while in this administrative forbearance and will show as outstanding accrued interest,” says the notice. “This accrued interest will not capitalize, meaning it will not be added to your principal balance once this forbearance ends, but it will still be required to be paid.” Borrowers who opt out of the forbearance and enroll in President Biden’s new SAVE plan may receive student loan interest benefits not available through an administrative forbearance.
In addition, administrative forbearances historically do not count toward student loan forgiveness for Income-Driven Repayment plans and Public Service Loan Forgiveness. New PSLF rules that went into effect on July 1 allow some administrative forbearances to count toward loan forgiveness, but only under certain circumstances “related to local or national emergencies or military mobilizations and or mandatory administrative forbearances provided to borrowers for collecting supporting documentation,” according to department guidance.
The department has not made clear whether the September administrative forbearance will count toward student loan forgiveness under the IDR and PSLF programs. Borrowers on track for PSLF may want to contact their loan servicer for more details, and consider opting out of the September forbearance if it won’t count toward PSLF.
Other Important Student Loan Payment And Loan Forgiveness Deadlines
These are not the only dates and deadlines borrowers must be aware of as student loan payments resume.
Borrowers who were previously enrolled in auto-debit before the student loan pause went into effect will need to contact their loan servicer before the end of August to reenroll. “If you were enrolled in autopay before the payment pause, you likely need to reenroll,” says department guidance.
Borrowers with commercially-held FFEL loans who want to benefit from the IDR Account Adjustment, a temporary initiative by the Biden administration that has already resulted in hundreds of thousands of borrowers being approved for student loan forgiveness, will need to consolidate into a Direct consolidation loan in order to qualify. And borrowers who have multiple Direct loans with different repayment histories may also want to consider Direct loan consolidation to maximize the loan forgiveness benefits. The deadline to consolidate to benefit from the IDR Account Adjustment is December 31, 2023.
Further Student Loan Forgiveness Reading
Student Loan Forgiveness Just Got Easier For These Borrowers
5 Student Loan Forgiveness Updates As Payments Resume In A Matter Of Weeks
Student Loan Pause Extension? New Proposal Would Eliminate Interest For Current Borrowers
Here’s When The Next Student Loan Forgiveness Notifications Will Go Out
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