The End of the On-Ramp to Repayment: What You Need to Know Before Repayment Resumes
The “on-ramp” period, which began in September 2023, is coming to an end. This one-year period allowed borrowers to miss payments without being reported to credit bureaus. However, after September, missed or late payments will once again be reported, potentially impacting millions of borrowers.
- 10 million borrowers have missed at least one payment.
- 6.7 million borrowers have missed three or more payments.
Failure to make payments for 270 days can lead to default, a status with severe consequences. Default can trigger wage garnishment, loss of tax refunds, and even social security garnishment for certain borrowers.
Why You Should Act Before Default
Falling into default is financially and emotionally devastating. Once in default, borrowers face aggressive collection tactics from government-backed debt collectors. Additionally, default can result in:
- Being placed in the CAIVRS system, which disqualifies you from government-backed loans, such as mortgages.
- A potential increase in your loan balance due to additional fees. While reforms have aimed to reduce these fees, they can still significantly raise the total amount owed.
Getting into an income-driven repayment plan before reaching default is key. Not only does it prevent damage to your credit, but it also avoids costly penalties. Remember, it’s far easier to manage payments now than to deal with debt collectors later.
Legal Delays on Loan Forgiveness
The Court of Appeals has temporarily paused President Biden's next wave of loan forgiveness. This forgiveness would have benefited borrowers with higher balances than originally borrowed or those who have been making payments for 20-25 years.
This ruling has delayed additional relief, but there’s no clear indication of when this pause will be lifted. However, it's important to stay informed, as this program could still provide relief for certain borrowers, especially those eligible for Borrower's Defense Discharge or Disability Discharge.
Don’t Worry About Changes to the SAVE Program
If you’re enrolled in the SAVE (Saving on A Valuable Education) program and are worried about losing your lower payments, rest assured that any changes won’t happen overnight. The Department of Education is likely to offer alternative programs to help borrowers keep their payments manageable. The courts may limit specific provisions, but there will still be options for borrowers in need of relief.
Need Help Navigating Your Options?
If you’re concerned about your student loans, LoanSense is here to help. We can assist you in understanding how these updates affect your repayment strategy, whether you’re preparing to buy a home or managing your debt-to-income ratio.
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