Student Loan Borrowers Will Lose Two Debt Relief Programs in Just Days

Student loan borrowers have only days left before two debt relief programs disappear.

Two COVID-era relief programs will end on September 30, and many borrowers must take immediate action before that date.

“If you’ve been relying on these programs, it’s time to pay attention,” Michael Ryan, a finance expert and the founder of michaelryanmoney.com, told Newsweek. “The safety net is being pulled away, and you don’t want to be caught off guard.”

The student loan “on-ramp” program started during the pandemic as a way to protect borrowers who were behind on payments or in default from adverse credit reporting and collections activities.

“Starting October 1, those protections will be lifted, and many borrowers could face a harsh reality this fall and winter,” Michael Lux, an attorney and the founder of the Student Loan Sherpa, told Newsweek.

The Fresh Start program will also conclude this month. Under Fresh Start, borrowers in default could remove their loans from default with just a phone call. According to the Department of Education, half of those eligible for Fresh Start qualify for $0 monthly payments, and 60 percent pay $50 or less.

“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,” Lux said. “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 wish to enroll in Fresh Start before it disappears need to verify their eligibility and act fast.

“The potential savings for these borrowers are significant, and when you factor in credit score improvements and potential loan forgiveness, it becomes an incredible opportunity,” Lux said.

Those who were eligible for the pandemic payment pause automatically benefited from the on-ramp program, but once the on-ramp period ends, adverse credit reporting, collection calls and wage garnishments will resume.

“It’s crucial to take action before October 1 to avoid these consequences,” Lux said.

The lawsuit threatening President Joe Biden‘s SAVE repayment plans also makes it more difficult for borrowers to enroll in income-driven repayment plans. However, borrowers should know they can still sign up by submitting a paper application to their loan servicer.

“Those who are interested in the SAVE plan will get placed on an interest-free forbearance while the lawsuit is pending,” Lux said. “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.”

Several Republican-led states filed a lawsuit against the federal government, alleging 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.

“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,” Bailey said in a statement. “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.”

In addition to the SAVE lawsuit, the conclusion of the two COVID debt relief programs will likely make paying off debt considerably more difficult for student loan borrowers, said Alex Beene, a financial literacy instructor for the University of Tennessee at Martin.

But there’s still time to take advantage of Fresh Start.

“If you’ve had loans go into default, now is the time to take advantage of this,” Beene told Newsweek. “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 recommended borrowers check their loan status at the studentaid.gov site and pick a repayment plan that won’t break the bank.

Setting up autopay could also significantly help borrowers trying to avoid default status.

“Ignoring this won’t make it go away,” Ryan said. “In fact, it’ll probably make things worse. Missing payments now could tank your credit score, making it harder to rent an apartment or get a car loan down the road.”

He added: “Face this head-on, even if it’s scary.”

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