Student loan borrowers are terrified because they will quickly lose two relief programs.
Many student loan borrowers must act quickly because two of the COVID-era relief programs will expire on September 30.
Michael Ryan, the founder of michaelryanmoney.com and a finance expert, told the media, “If you’ve been relying on these programs, it’s time to pay attention.” “The safety net is being pulled away, and you don’t want to be caught off guard.”
During the pandemic, the student loan relief program began protecting borrowers who had missed payments or defaulted from collections and reporting activities.
Michael Lux, an attorney and the founder of the Student Loan Sherpa, told the media, “Starting October 1, those protections will be lifted, and many borrowers could face a harsh reality this fall and winter.”
The Fresh Start initiative program will end this month. The program allowed borrowers in default to remove their loans’ default with just a phone call. According to the Department of Education, 50% of applicants eligible for Fresh Start qualify for a $0 monthly payment, and 60% pay $50 or less.
Lux stated: “The challenge is that many borrowers in default are unaware of Fresh Start, partly because the on-ramp program shielded them from the consequences of default.” “Once Fresh Start ends, borrowers will be left with two less attractive options to resolve their default: loan rehabilitation or consolidation, both of which have significant drawbacks.”
He added that borrowers who want to register for Fresh Start and are eligible should act fast before it disappears.
Lux said: “The potential savings for these borrowers are important, and when you factor in credit score improvements and potential loan forgiveness, it becomes an incredible opportunity.”
Those who qualify for the pandemic payment pause automatically benefit from the on-ramp program. Still, the on-ramp period elapses, adverse credit reporting, collection calls, and wage garnishments will continue.
Lux said: “It’s important to take action before October 1 to avoid these consequences.”
The legal action threatening President Joe Biden’s SAVE repayment initiatives also makes it more difficult for borrowers to enrol in income-driven repayment plans. However, borrowers should be aware that they can sign up by submitting a paper application to the loan service provider.
Lux stated: “Those who are interested in the SAVE plan will get placed on an interest-free forbearance while the lawsuit is pending.” “This time won’t count toward forgiveness, but it is a great way for borrowers to affordably transition back to repayment and keep their credit scores and paychecks intact.”
Many Republican-led states took legal actions against the federal government, claiming that Biden’s administration “unlawfully tried to mass cancel hundreds of billions of dollars in loans.”
Missouri Attorney General Andrew Bailey filed the lawsuit along with Georgia, Alabama, Arkansas, Florida, North Dakota, and Ohio.
Bailey stated: “The Biden-Harris Administration is dedicated to saddling working Americans with Ivy League debt, even if they have to break the law to do it.” “Our latest lawsuit challenges their third and weakest attempt to mass-cancel student loans in the dark of night without letting Congress—or the public—know about it. That’s illegal.”
According to Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, the expiry of the two COVID debt relief programs, in addition to the SAVE lawsuit, will likely make paying off debt considerably more difficult for student loan borrowers.
However, there is still time to take advantage of Fresh Start before it elapses.
Beene told the media, “If you’ve had loans go into default, now is the time to take advantage of this.” “That’s not to say you can’t turn your default status around after September 30, but the mechanisms this program utilizes will no longer be in place, and the path will be that much more difficult.”
Ryan suggested that borrowers check their loan status at the studentaid.gov website and get a repayment plan that won’t cause the bank to collapse.
Establishing an autopay could also greatly assist borrowers trying to avoid default status.
Ryan stated: “Ignoring this won’t make it go away.” “In fact, it’ll probably make things worse. Missing payments now could tank your credit score, making it difficult to rent an apartment or get a car loan down the road.”
He added: “Face this head-on, even if it’s scary.”
