After more than three years of relief initiated during the pandemic, student loan payments officially resumed on Sunday, placing the financial burden back on over 28 million borrowers.
The decision by the Biden administration to reactivate all student loan accounts has sparked a range of reactions, with concerns about a government shutdown looming in the background.
Natalia Abrams, president and founder of the Student Debt Crisis Center, expressed her disappointment, saying, “It’s a sad day for student loan borrowers and for the country that student loans have to come back on, especially with the threat of a looming government shutdown, potentially on the same day.”
A July survey conducted by Life and My Finances revealed that half of the borrowers felt financially incapable of affording their student loan payments, with only 22 percent having a clear repayment plan.
Some have resorted to a student debt strike to protest against the existing system.
President Biden, who made student loan relief a central promise of his 2020 campaign, introduced an “on-ramp” repayment plan.
This plan allows borrowers to miss monthly payments for the next year with fewer consequences than before.
While borrowers won’t face delinquency, wage garnishment, or debt collectors, interest will continue to accrue, potentially affecting their credit scores.
Jacob Channel, a senior economist and student loan repayment expert at Lending Tree, warned, “There could be situations where potentially because you’re not making your payments, the value of your loan is increasing because it’s collecting interest so that you will owe more money.
The credit bureau considers that, and maybe your credit score gets dinged a little bit.”
Even before the pandemic pause, student loans were a significant financial burden for millions of Americans, influencing major life decisions.
In 2019, nearly half of student loan borrowers delayed investing in a home due to their school debt.
The Biden administration has taken steps to alleviate this burden, forgiving $117 billion in student loans for more than 3.4 million borrowers, mainly stemming from the borrower defense program designed to forgive the debt of those defrauded by their schools.
However, the Supreme Court struck down President Biden’s attempt to forgive at least $10,000 in student loans for all 45 million borrowers in June.
Challenges Ahead for the SAVE Plan in Student Loan Repayment
The administration has introduced the Saving on Valuable Education (SAVE) plan, a new income-driven repayment program.
Beginning this year, the first phase raises income exemptions, allowing some borrowers to have $0 monthly payments.
Unpaid interest growth for borrowers ends this year, with further reductions in monthly payments planned for next year.
While these measures offer relief to some, borrowers with increased incomes during the pandemic may find the new plan less helpful.
Notably, only 28 million out of 45 million student loan borrowers will resume payments in October, with others still in various account statuses, such as being in school or awaiting debt discharge.
The resumption of payments has drawn support from Republicans, who argue that delays and promises from the Biden administration have left borrowers in a worse position.
They advocate for more transparency in the cost of college and hold colleges accountable for rising tuition fees.
As Congress grapples with government shutdown discussions, student loan servicers face customer service challenges due to funding shortages.
According to the White House, a prolonged shutdown could worsen the problem, potentially disrupting the return to repayment efforts and long-term support for borrowers.
The resumption of payments also falls just a year before the 2024 presidential election, putting pressure on President Biden to address student debt relief.
Progressive Democrats continue to push for more substantial relief, with some calling for $50,000 in student loan forgiveness for all borrowers.
The Department of Education is exploring potential relief options through the negotiated rulemaking process under the Higher Education Act.
While no specific relief plan has been finalized, the process is expected to extend into 2024, with legal challenges likely to follow any proposed changes.
Source: The Hill