Student loan payments were paused for three years due to COVID-19. However, with the recent bill addressing the country’s debt ceiling crisis, these payments are now scheduled to resume. The provision in the bill specifies that student loan protocols will return to normal “60 days after June 30, 2023,” as stated in the Fiscal Responsibility Act, making August 29 the resumption date.
The debt limit plan terminates the suspension of federal payments and interest fees, signifying a complete return to the pre-pandemic schedule by the end of August. Since March 2020, the interest rates on all government-held federal student loans have been set at zero percent; however, after August 29, interest will begin accumulating again.
For most borrowers, federal student loan interest rates are fixed according to statutory constraints set by Congress at the time of the loan’s initial disbursement. Therefore, interest rates will revert to the levels in place before the student loan pause was implemented three years ago.
If you consolidate your loans through the government’s Direct loan program during the loan pause, the interest rate for your Direct Consolidation Loan will be determined by calculating the average interest rate of the loans that were consolidated; this value will be rounded up to the closest eighth of a percentage point.
On Wednesday night, the House of Representatives approved the debt ceiling plan with bipartisan support. On Thursday evening, the Senate passed the bill. The final step is President Joe Biden’s signature, which is expected soon and has been hailed as a victory by House Speaker Kevin McCarthy (R-CA).
As per the guidelines of the Office of Federal Student Aid, borrowers of student loans will be informed about the payment amount at least 21 days in advance of the payment deadline. Students who were enrolled in an automatic payment plan before the pandemic will need to opt back in.
This year the Supreme Court is anticipated to announce its verdict on Biden v. Nebraska towards the end of June. This case examines the validity of the president’s plan for student loan forgiveness. If the high court approves the Biden administration’s loan cancellation plan, eligible borrowers could have up to $20,000 of their balance forgiven. The plan includes $10,000 in debt relief for single individuals earning less than $125,000 and married or joint-income borrowers with an income below $250,000.
Furthermore, borrowers who received Pell Grants, a federal grant program for low-income undergraduates, may be eligible for an additional $10,000 in debt relief.
Since March 2020, the Department of Education has repeatedly extended the pause on student loan repayment. The most recent extension was in November 2022, which has now been declared as the final one. A report done by the Board of Governors of the Federal Reserve System shows that student loan borrowers have experienced better financial well-being since the start of the COVID-19 pandemic. In 2021, over 70% of self-reported adults with outstanding debt reported being financially stable to some extent, compared to 65% two years prior.