A cash crunch at the U.S. Education Department is forcing officials to cut customer service ahead of the “unprecedented” restart of student loan payments for 43 million Americans.
Officials worry the agency may not have enough funding to implement “a smooth return to repayment” when millions of Americans are sent student loan bills for the first time since the COVID-19 pandemic began in March 2020.
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What does a bumpy road look like for borrowers? Not only will you have to adjust your monthly budget to cover your student debt — but you may also struggle to connect with your loan servicing company if you have questions or concerns and everything could take longer to process.
“It’s a slow-moving car crash,” Jared Bass, senior director for higher education at the Center for American Progress and a former Democratic appropriations staffer, told POLITICO. “We see what’s about to unfold, so let’s just prevent it now and just step in and take preventative measures.”
Education Secretary Miguel Cardona has called for an “all hands on deck” approach to help stem any unnecessary harm to borrowers — and there are also things that you can do to make your student loan repayment as pain-free as possible.
When will student loan payments restart?
President Joe Biden and House Speaker Kevin McCarthy came to terms on a deal in late May to lift the country’s debt ceiling, and legislation was approved by the Senate on June 1. Part of the bill stated the student loan payment freeze would end 60 days after June 30, meaning borrowers would need to resume making payments Aug. 30 at the earliest.
Prior to the deal, the Education Department had been looking at a range of borrower-friendly initiatives to help people resume their payments and “remain in good standing with their student loans” — with “a particular focus on those who are most at risk,” it shared in a budget document released last month.
For instance, officials considered a “safety net” or grace period — potentially up to a year after repayment begins — where borrowers won’t be penalized for missing payments, POLITICO reported.
But the Education Department needs adequate funding to bring these initiatives to life.
While politicians debate, here are three ways to make your student loan repayments as pain free as possible.
Rebuild your budget
According to Federal Reserve data, the average student loan monthly payment is $393.
Finding nearly $400 every month after a three-year freeze of not having to pay anything could be tricky — especially if you’ve slipped into new habits and allocated that cash to other more urgent needs.
You may want to revisit your budget to ensure you have enough money to cover your student debt. If you don’t, the consequences could be dire.
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If you miss a student loan payment, even by just one day, your loan becomes past due or delinquent. It will stay that way until you repay the past-due amount or make other arrangements with your lender.
If you’re delinquent on your loan for 90 days or more, your loan servicer can report the delinquency to the three major national credit bureaus, and your credit rating could be cut.
With a poor credit rating, you may find it difficult to obtain credit cards, home or car loans or other forms of consumer credit — and if you’re still able to borrow money, you’ll likely have to pay a higher interest rate than someone with a good credit rating.
If you’re not sure how to rebuild your budget to include student loan repayments, it might be helpful to reach out to a professional financial adviser who can…