When Do Student Loan Payments Resume?

Payments resumed this fall for millions of federal student loan borrowers in the U.S.

A debt ceiling deal from late May established that a three-year pause on federal student loan payments and interest would expire on Aug. 28. With that, 28 million borrowers were plunged into payments again, beginning in October.

However, the mechanics of when borrowers will actually have to pay off their debt isn’t so cut and dry.

The pause on federal student loan payments ended Aug. 29, but that doesn’t mean borrowers had to pay up that same day.

The Department of Education clarified that payments will be due starting in October. Interest on federal loans, however, began accruing on Sept. 1.

Beyond the resumption date, little was known about the Department of Education’s plan to resume payments. House Republicans requested a briefing from the department by July 20, 2023, but the department failed to comply with that request. Education and the Workforce Committee Chairwoman Virginia Foxx, a Republican representing North Carolina, threatened to subpoena the department on July 27.

Some borrowers may need more time to get their ducks in a row.

The moment a borrower is late on a student loan payment, that loan becomes delinquent. However, student loan servicers normally wait at least 90 days before reporting any delinquent loans to a credit bureau.

The Department of Education (ED) is changing this rule in light of the U.S. Supreme Court striking down Biden’s loan forgiveness program.

ED said that it will not mark past-due loans as delinquent for the first 12 months of repayment after the pause lifts. That means borrowers can miss payments until Sept. 30, 2024, without those missed payments impacting their credit score.

Interest will, however, continue to accrue during this “on-ramp” period, the department said.

Borrowers with a loan 270 days past due normally would see that loan go into default.

The department’s on-ramp period will also prevent past-due loans from going into default through September 2024. Debt collection agencies also will not forcibly collect on unpaid debt during this time period.

The consequences of a default are severe. The federal government can garnish a borrower’s wages if they go into default, and that borrower will lose eligibility for any additional financial aid until they exit default and rehabilitate their loan.

ED recently launched the initiative “fresh Start.” This allows all borrowers impacted by the pause on student loan payments to exit delinquency and default. This puts them in good standing with their loans, allowing borrowers to once again be eligible for federal financial aid.

The debt ceiling bill made it illegal for President Biden to extend the pause on loan payments any further.

However, options do exist for individual borrowers to withhold on paying their loans without the negative consequences of delinquency or default.

Forbearance is one option.

Borrowers can request a general forbearance from their loan servicers if they are unsure of their ability to repay their loans once the pause ends. While the loan servicer has the final say in whether to grant this, Federal Student Aid (FSA) says the following reasons can be used to request general forbearance:

There are also some mandatory forbearance options, like when someone begins serving in AmeriCorps or National Guard duty.

It’s important to note that interest on student loans continues to accrue when the loan is in forbearance.

The second option available to borrowers is deferment.

Deferment is similar to forbearance, but interest only accrues for some loan types. Those with direct subsidized loans, subsidized federal Stafford loans, and federal Perkins loans do not accrue interest when that loan is in deferment.

There are, however, stricter rules for when a loan servicer can grant deferment.

Here are the different deferment options, per FSA:

Economic hardship deferment is only available to borrowers who are receiving a means-tested benefit like welfare, work full time but make less than 150% of the federal poverty guideline, or are serving in the Peace Corps.

Carolina Rodriguez, director of the Education Debt Consumer Assistance Program (EDCAP), previously told BestColleges that forbearance and deferment should be seen as a last resort. If borrowers had to choose one, however, she said deferment is the better solution.

Borrowers may instead look into the new income-driven repayment (IDR) plan. While the full plan won’t officially be available until mid-2024, there are some benefits already in effect that may lead to lower monthly payments.