Millions of Americans are starting the month with an extra bill to pay. Federal student loan repayment has officially begun.
On Wednesday, President Biden announced that $9 billion in student debt has been forgiven. His announcement comes just three days after student loan payments resumed. They were paused due to the COVID-19 pandemic. In June, the U.S. Supreme Court ruled against his broader loan forgiveness proposal, which would have helped 40 million borrowers.
This new plan helps 125,000 borrowers who fall into particular categories, including those working in public sector jobs.
“With the latest debt cancellation in total, my administration has canceled 127 billion dollars in student debts for nearly three-point-six million Americans.” Biden announced on Wednesday, “This kind of relief is life-changing for individuals and their families. But it’s good for our economy as a whole as well.”
Even with the extra relief, many Americans are being put in a tight spot as the cost of living continues to climb.
The Biden administration has also set up an “on-ramp” plan effective through September 2024 that acts as a grace period when missed payments will not be penalized or reported.
“Normally with federal student loans, if you’re 90 days delinquent or more, it starts getting reported negatively to the credit bureaus.” Betsy Mayotte, a spokesperson for The Institute of Student Loan Advisors said. “That’s not going to happen during these 12 months.”
The one catch is that interest will accrue, meaning the best bet for borrowers is to make plans now to avoid default, which happens if payments are not made for 270 days or about 9 months. The Institute for Student Loan Advisors recommends borrowers use the loan simulator tool at Studentaid.gov to find which repayment option works best for them.