Two Big Benefits of Student Loans Expire Today. Here’s What You Should Do

If you have federal student loans, two important benefits end today: the student loan repayment “on-ramp” and the Fresh Start program.

From March 2020 to October 2023, student loan payments were temporarily suspended in response to the pandemic. Over the past year, borrowers have received additional benefits designed to ease the transition back to active student loan repayment.

As of September 30, these benefits expire. Starting in October, missing payments can lead to defaults, collections and damage to your credit report. If your loan is in bad shape due to missed payments, you have until the end of the day on Monday to apply for a Fresh Start program to get any defaulted loans.

Here’s what will change from October 1.

Missed student loan payments will count against you

Since student loan payments have been suspended for more than three years, the Department of Education has given borrowers a one-year grace period to help them prepare for monthly repayments. Although payments were still required at this time, if you could not make them every month, your loan was not submitted to delinquency or default. Loan officers are also instructed not to report missed payments to the credit bureaus during this window.

Interest still accrued, and skipping payments meant you weren’t making progress toward getting out of debt or qualifying for a loan forgiveness program like Public Service Loan Forgiveness.

As of October 1, this will change. Late payments can now be reported to the credit bureaus, which can hurt your credit score. If your payments are 90 days late, your loan becomes delinquent, and if you miss 270 days of payments, your loan is considered delinquent. Defaulting on student loans can have a number of negative consequences. Your debt may go into collections, and the government may try to collect payments by garnishing your wages, tax refunds and Social Security benefits.

“Borrowers who miss payments on their student loans can be severely impacted when the on-ramp ends,” says student loan attorney Adam Minsky. “This can include late fees, bad credit reporting and non-payment.”

Exceptions: If you are enrolled in the Savings in a Valuable Education repayment plan, your student loan payments will remain on hold until the courts decide the outcome of this debt relief program.

The Fresh Start program will be closed

The Fresh Start program offers borrowers an easy way to get a student loan automatically. You just have to enroll in the program online or by phone by September 30 to get your loan back in good standing.

After you apply for Fresh Start, the default record will be removed from your credit report, and you’ll also have access to income-driven payment plans, deferment plans, forbearance and forgiveness plans.

The government also automatically granted some benefits to defaulting borrowers last year, such as slowing collection efforts and restoring access to their Federal Student Aid accounts. These benefits will end on your unpaid loan if you decide not to apply for Fresh Start.

How to manage your student loans going forward

It’s a confusing time to have federal student loans right now. Not only are the benefits of the COVID era ending, but your access to income-driven payment plans is also limited indefinitely.

There are still steps you can take to manage your student debt and avoid default:

• Update your student loan status: Start by logging into your Federal Student Aid account to review your loan balances, interest rates and payment status. You can also see who is working on your loan in your account.
• Sign up for automatic payments: If you can afford your monthly payments, consider signing up for automatic payments. That way, you won’t miss any bills and you’ll get a 0.25% discount on your interest rate.
• Discuss options with your loan officer: If you can’t afford the payments, call your loan officer to talk about your options, before you miss any loans. Although access to IDR programs is currently limited, a loan servicer may place your student loans into interest-free forbearance.
• Get a loan automatically: If you have a loan in default, consider applying for the Fresh Start program by the end of the day on September 30. If you miss this deadline, consider consolidating or refinancing to get back on track. Consolidation provides a quick way out of default, but renewal can remove a record of default from your credit report.
• Check out the PSLF Buyback program: The PSLF program offers loan forgiveness after ten years of public service. If you are a teacher or public servant who has already completed ten years of service, you may be able to “buy back” the months spent forbearance or forbearance to meet the requirement of “120 qualifying payments” for PSLF. You can find more details about this PSLF Buyback opportunity here.