One of Biden’s students’ debt forgiveness initiatives closed early Wednesday, and student loan debtors cannot register for the Fresh Start plan.
Student loan borrowers have received bad news: One of the debt forgiveness initiatives, Fresh Start, which permitted borrowers to get out of default, officially closed on October 2 at 3 a.m. E.T. Debtors who managed to take their loans out of default will be protected from the impact of their debt on their credit report. The plan will also allow borrowers to apply for an income-driven repayment plan, which can lead to full debt cancellation.
Tess Michaels, founder and CEO of recruitment platform Clas, told the media, “This is the last chance to use it to get back on track and potentially set up an affordable repayment plan. It’s time to get creative. Always look into all your options, like employer-sponsored programs, to help lighten the load and stay on course for a good financial future.”
The SAVE Plan is one of the income-driven repayment initiatives facing legal changes; however, it allows you to cut down your monthly payment to $0.
The Education Department extended the deadline for the Fresh Start plan by two days because of technical challenges with the website that would have stopped borrowers from benefitting from the program. The imitative was initially set to expire on September 30.
Missed payments under Fresh Start do not result in default or adverse effects on the borrower’s credit rating. Under the Fresh Start Program, they can also avoid having their wages garnished and their Social Security benefits withheld.
Although the COVID-19 pandemic forced the federal government to temporarily suspend student loan payments, the on-ramp period allowed debtors to gradually resume making their payments without risking default due to missing or late payments.
An attorney and founder of the Student Loan Sherpa, Michael Lux, stated, “Instead of moving forward with negative credit reporting, wage garnishment and other collection tactics, the on-ramp program prevented servicers from moving forward with these tactics.” “These protected borrowers who were confused by their repayment options or unable to track down their student loan servicer.”
However, since that time frame expired on Monday, all of your missing payments from October will still be shown on your credit report as a default.
According to Alex Beene, a financial literacy lecturer at the University of Tennessee at Martin, student loan borrowers will be increasingly responsible for their monthly payments without government support after the Fresh Start and off-ramp periods expire.
Beene told the media, “As with any financial product, there should be a level of responsibility in monitoring and paying for the loans you’ve taken out, but Fresh Start allows these student borrowers, often younger and not always aware of just what type of debt they’ve signed up for, to miss a payment without it tanking their credit score.”
“It allowed more opportunities for mistakes without the penalties that normally followed them. With Fresh Start ending, students will have to be on top of their monthly payments for student debt and make sure they’re meeting any deadlines put in place.”
Effectively, this month, those who fail to pay their loan will see an increase in interest on their total debt. They will also no longer be qualified for future financial aid and other federal loan relief programs like SAVE.
Lux stated, “Once a delinquency becomes a default, things get harder to fix, and the consequences become more severe. “In most cases, the longer you wait, the worse things become. The on ramp made ignoring federal student loans nearly consequence-free, but now that it is over, borrowers will need to take action.”
