The Biden administration is developing plans to ease the impact of resuming Student loan payments for millions of Americans this fall, following a pause of over three years.
The Education Department has recently implemented a new policy that provides a three-month grace period for missed payments once student loans become due in October.
Further Flexibility for Student Loan Repayment
The Education Department has also instructed student loan providers to be ready to offer similar flexibility for further 90-day periods. It is important to stress that even during the grace period, defaulting debtors will still be charged interest on their debts.
The policy, known internally as a safety net period, has the objective of safeguarding borrowers who become delinquent on their payments from adverse effects on their credit reports.
The department intends to extend this protection beyond the 2024 presidential election and postpone the consequences of a default for severely delinquent borrowers until at least 2025.
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Heightened Talks After Freezing Loan Payments End
The final design of President Joe Biden’s new loan payback program is also being prepared for announcement and quick implementation by Education Department officials.
This new program, now named the SAVE plan (Saving on a Valuable Education), will be marketed as a way for borrowers to reduce costs when they resume their monthly payments. The existing program, known as REPAYE (Revised Pay As You Earn), will be rebranded.
Discussions within the administration have intensified since Biden reached an agreement with House Speaker Kevin McCarthy to end the freeze on student loan payments related to the pandemic.
However, the recent Supreme Court decision to block Biden’s authority to cancel up to $20,000 of student debt directly affects the resumption of payments.
For several years, the Education Department has been advising federal student loan servicers to expect a three-month transitional period without penalties for missed payments.
The latest directive specifies an initial grace period of 90 days, with the possibility of further extensions. The department has also instructed loan servicers to be prepared to bring delinquent borrowers back into good standing once the grace period ends.
The goal is to assist borrowers in smoothly transitioning back to loan repayment and ensure effective communication between servicers and borrowers throughout this process.
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