The US Department of Education will send out student loan bills for the first time in three years – but has also made cuts because it is tight on cash. What could go wrong?
A cash shortage at the US Department of Education is forcing authorities to scale back customer service ahead of an “unprecedented” resumption of student loan payments for 43 million Americans.
Officials worry the agency may not have enough resources to implement a “smooth return to repayment” when student loan bills are sent to millions of Americans 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 do you have to adjust your monthly budget to cover your student debt, but it can also be difficult to get in touch with your credit servicer if you have questions or concerns that could take longer to process.
“It’s a slow-speed car crash,” Jared Bass, senior director of higher education at the Center for American Progress and a former employee of the Democratic Treasury, told POLITICO. “We see what’s going to happen, so let’s just prevent it now and just step in and take preventive action.”
Education Minister Miguel Cardona has called for an “all hands on board” approach to avoiding unnecessary harm to borrowers – and there are things you can do to prevent that too Student loan repayment as painless as possible.
When will student loan payments resume?
There’s still a lot of uncertainty about when borrowers will actually need to start paying off their student debt — and when the Biden administration’s funding woes could really become a problem.
Earlier this year, President Biden extended the pause on federal student loan repayments while the Supreme Court debates his plan cancel student debt for tens of millions of Americans. Payments will resume either 60 days after the dispute is resolved or 60 days after June 30, whichever comes first.
However, the Department of Education is reportedly considering a transition period that could postpone repayment to October Documents obtained from POLITICO.
The ministry is reviewing a range of borrower-friendly initiatives to help people resume payments and “stay in good standing with their student loans” — with “particular focus on those most at risk,” it said a budget document published last month.
For example, officials are also considering a “safety net,” or a payment deadline — possibly up to a year after the start of repayments — in which borrowers are not penalized for non-payment. POLITICO reported.
But the Department of Education needs sufficient funds to put these initiatives into action — money that Congress has so far been unable to provide since Republicans rejected Biden’s student-debt relief plan.
While politicians debate this, here are three ways to make paying off your student loan as painless as possible.
Rebuild your budget
According to the Federal Reserve Bank of New York, the average monthly student loan installment is $393.
It might be difficult to find close to $400 a month after three years of paying nothing — especially when you’ve developed new habits and used the money for other, more pressing needs.
you might want to Check your budget to make sure you have enough money to cover your student debt. If you don’t, the consequences could be devastating.
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If you miss a student loan payment by even one day, your loan is past due or in default. This will remain so until you repay the overdue amount or make other arrangements with your lender.
If you are 90 days or more delinquent on your loan, your credit servicer can report the delinquency to the three major national credit bureaus, which will result in your credit rating being downgraded.
If you have a bad credit score, you may have a hard time getting credit cards, home or car loans, or other forms of consumer credit — and if you can borrow money, you’ll likely have to pay a higher interest rate than someone with good credit.
If you’re unsure how to restructure your budget to include student loan repayment, it may help to contact one professional financial advisor Advisor who can put you on the right path.
Make payments even when you don’t have to
You don’t have to wait for the government’s green light to make your student loan payments.
In fact, since the interest rate on federal loans is currently frozen at 0%, it might be beneficial to start making regular payments (if you’re not already doing so), so any payments you make go entirely toward the principal balance of your loan.
Being able to pay more than your usual minimum is also a smart idea (if you can afford it), as it will reduce your loan balance.
If you are burdened with other debts and are not yet able to start paying off your loan, you should use this time to clean up your finances and possibly even get a handle on your debt with the help of a loan lower interest debt consolidation loan.
Find the best redemption pan
There are ways to pay off your student loan debt faster by changing your current payment schedule, especially if your income dropped during the payment freeze and still hasn’t come back.
The government offers income-based repayment plans which allow you to make cheaper payments based on your earnings. After you’ve made regular payments under an income-tested plan for 20 or 25 years, your remaining college debt will be canceled.
This could be your best shot at getting some of your student loans canceled — especially if the Supreme Court rules against Biden’s student loan forgiveness plan.
An easy step to saving money on a federal student loan is to sign up for Autopay because when you sign up for automatic deposits, you get a 0.25% interest rate reduction when payments resume.
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This article is for informational purposes only and should not be taken as advice. The provision is made without any guarantee.