On Saturday June 3rd, President Joe Biden signed the long-awaited debt ceiling deal into law. The Fiscal Responsibility Act of 2023 averts the general economic chaos that could ensue if the U.S. defaulted on its domestic and foreign debts, and imposes cuts in federal spending.
The legislation also ends the three-year pause on federal student loan payments and interest accrual in effect since March 2020.
When Will Federal Student Loan Payments Resume?
According to the bill’s language, the federal student loan payment pause will end “60 days after June 30th,” or Aug. 30th.
Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October. The Department of Education will notify borrowers well before payments restart.
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What About Student Loan Forgiveness?
On June 30th, the Supreme Court ruled against President Joe Biden’s plan to forgive up to $20,000 in federal student loan debt for qualified loan holders, saying the president did not possess the constitutional authority to take such an action but that Congress should make such a decision.
President Biden announced new ways to help people with federal loan debt .
The Department of Education is instituting a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.
In addition to the “on ramp” program, Biden said he will strengthen a plan that reduces federal loan holders’ debt based on their income called SAVE.
For years, people who struggled to pay their federal student loans could enroll in the government’s Income-Driven Repayment Plans . Such a plan sets your monthly federal student loan payment at an amount that is intended to be affordable based on your income and family size. It takes into account different expenses in your budget.
The four income-based plans are: Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).
Biden said that his Administration is “creating a new debt repayment plan, so no one with an undergraduate loan has to pay more than 5 percent of their discretionary income.”
The Fiscal Responsibility Act of 2023, commonly referred to as the debt ceiling bill, officially cancels the pause on federal student loan repayment and interest accrual at the end of August. Borrowers must now prepare to repay their loans this fall. Federal student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October.
Student loan refinancing is one way borrowers can seek to make student loan payments more manageable. If you want to lower your monthly payment but your federal debt is potentially eligible for Biden’s one-time forgiveness program, you can refinance just the amount that will not be canceled. Note that the refinanced amount will lose access to federal protections and programs, and you may pay more in interest over the life of the loan.
Photo credit: iStock/Su Arslanoglu
Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
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