Student Debt Relief: What’s Changing, How You Should Prepare
Published On: September 22nd, 2024
The landscape of student debt relief in the US is changing rapidly as pandemic-era protections come to an end. With the expiration of two key programs by the end of September 2024, borrowers face a new financial reality, even as interest rates have also begun to shift following a Federal Reserve rate cut. Understanding the impacts of these changes is crucial for borrowers navigating this difficult financial environment.
- Total student loan debt in the US: Approximately $1.6 trillion, as of Q2 2024
- Federal relief programs ending: Fresh Start and the student loan ‘on-ramp’ end on September 30, 2024
- Current federal student loan borrowers: Approximately 43 million
- Impact on borrowers: Due to the Fed’s rate cut, private loans with variable rates may see reduced payments; federal loans are unaffected unless refinanced
Two major student loan relief programs—Fresh Start and the on-ramp program—expire at the end of September 2024, affecting millions of borrowers. These initiatives were put in place during the COVID-19 pandemic to provide temporary relief by suspending negative credit reporting and default collections. Now, borrowers must resume payments and manage accrued debt, with many facing the possibility of wage garnishment and other financial penalties if they do not take action.
While President Biden’s broader loan forgiveness programs have faced multiple legal challenges, the expiration of these pandemic-era programs adds immediate pressure on borrowers. Experts recommend that borrowers review their repayment options and take advantage of income-driven repayment (IDR) plans or loan consolidation options before these programs expire.
Fed rate cut and its impact
The Federal Reserve’s recent decision to cut interest rates by 50 basis points was meant to ease broader financial pressures, but its effect on student debt is limited. While the cut will marginally lower payments for those with private, variable-rate loans, federal loan holders will not see any direct benefit since their loans have fixed interest rates. However, new borrowers could see lower rates on federal loans taken out after the cut, providing some future relief.
Still, for most borrowers, the current rate cut doesn’t alleviate the immediate challenge of resuming payments on federal loans. Financial experts recommend keeping an eye on refinancing opportunities in the private loan market to lock in lower rates.
What should borrowers do?
With deadlines looming, borrowers should take several critical steps:
- Check loan status: Log in to student loan servicer portals to confirm loan balances and repayment statuses
- Choose a repayment plan: Borrowers should consider enrolling in income-driven repayment plans like the SAVE plan, which ties monthly payments to income levels
- Avoid default: Setting up automatic payments can help ensure timely payments and avoid default penalties, such as wage garnishment or credit damage
Experts caution that ignoring these issues will worsen the financial burden, especially for those at risk of default once protections end.
The end of these relief programs and the ongoing legal battles over debt forgiveness will not only impact borrowers but also have wider economic consequences. Consumer spending may decline as millions of borrowers allocate more of their income to loan repayments. This could slow economic growth, as the financial burden of student debt continues to weigh heavily on younger generations, limiting their ability to save, invest, or make large purchases like homes and cars.
So, while the Federal Reserve’s rate cut may offer limited relief, the expiration of key student loan protections creates an urgent need for borrowers to act. Understanding repayment options and acting swiftly will be key to mitigating the financial impact of these changes.