US President Joe Biden signed the Biden-McCarthy debt ceiling plan on Saturday to prevent the United States from a default crisis. The Senate voted to pass the plan Thursday night, a day after the House of Representatives passed the bill with bipartisan support.
“Passing this budget deal is critical,” Biden said Friday night, in his first prime-time address from the Oval Office. “The stakes couldn’t have been higher.”
While the deal is focused on raising the debt ceilingit also includes changes to public programs such as medical care for veterans and food assistance for low-income households. The agreement will also end a moratorium on federal student loan payments that began during the COVID-19 pandemic.
The bipartisan deal calls for student borrowers to begin paying off loans as soon as August 30. While this timeframe is part of the president’s plan that was laid out in November, there is little doubt that borrowers should begin to pay off their loans. The text of the deal prevents the Secretary of Education from initiating another shutdown.
More than 43 million Americans owe a total of $1.73 trillion in student loans, according to the Federal Reserve. The average amount owed is $37,338 and the average monthly payment is $337. Student loan debt is a growing problem as young borrowers find themselves financially burdened by their payments that prevent them from pursuing major life events such as getting married or buy a house.
Here’s how the debt ceiling deal affects student loans and what you can do to prepare for the payments.
What happens to student loan borrowers who are approved for a debt ceiling agreement?
The text of the debt ceiling bill states that borrowers must continue paying their student loan payments 60 days after June 30, the date originally set by President Joe Biden in November. It will officially end the student loan freeze that President Donald Trump started early in the COVID-19 pandemic.
Biden signed the bill into law on Saturday. It was passed by the Senate on Thursday and the House the day before. In a speech in the Oval Office on Friday night, Biden called the deal critical and said the stakes could not be greater.
The agreement prevents the US Department of Education from reinstating a moratorium, meaning Congress would have to approve such a move. Secretary of Education Miguel Cardona testified in the Senate last month that there will be no further suspension before June 30.
This means that borrowers must begin repaying loans as soon as August 30, and interest on student loans can accrue again. The exact time of your first payment will depend on the loan servicer and the payment plan you agree to.
Is there any student loan forgiveness?
Not subject to the debt ceiling agreement. However, there is a stipulation that if Biden’s student loan forgiveness program is approved by the Supreme Court, the cancellation will continue unabated.
In August, Biden announced a plan to forgive up to $20,000 in student loans to those who qualify. The move received two legal challenges arguing that the cancellation violated the authority of the Secretary of Education. The Supreme Court has until the end of June to make a decision on the matter.
How to prepare for student loan repayment.
With student loan payments likely to start again in less than three months, there are a few things you can do now to prepare.
If you have savings earmarked for student loan payments, a good option is to take advantage of a high-yield savings account. Open an account and deposit money intended for student loans. Money builds thanks to higher interest rates, with some as high as 4.85% APR.
If you have high-interest debt, such as credit card debt, work to pay off your balances or consolidate your debt into a lower monthly payment before starting your student loans. Debt consolidation can help you consolidate higher-interest variable debt into lower-interest fixed-rate payments and help if you need a few years to pay off your debt. But if you need a few extra months to pay off your loan, a balance transfer card can give you a temporary break from interest charges while you work to pay off your balance.
Both options will help put you in a better financial position before the loan payments begin.
Still worried about paying off student loans?
If you have concerns about repayment, you should talk to the loan servicer.
There are options to change the payment plan to something cheaper or delay the payment for a period of time.
The Department of Education’s Student Aid website also has information about different repayment plans such as income-driven repayment plans and loan consolidation options.
