Student Loan Forgiveness Deadline Sparks Warnings

Student loan borrowers have just a few months left before they could see a significant hit to their credit scores.

While President Joe Biden's administration has issued a range of student debt forgiveness plans, some of the debt recovery policies are ending this fall.

After the national student debt pause ended in October of last year, the Education Department implemented a transition period. During this time, anyone who missed their student loan payments wouldn't find themselves in default or hurt their credit scores in the process.

The measure was intended to allow borrowers time to get back on track on student loan payments without any permanent damage to their financial standings.

"This transitionary period was approved to assist borrowers in adjusting post-pandemic, protecting them from the usual penalties of missed payments, such as credit score impacts and default," Larry Zhong, a finance expert and founder of YieldAlley.com, told Newsweek. "It reflects efforts to ease the financial burden and facilitate a smoother transition back to regular payments."

However, these benefits end officially in September.

Student Loan Transition Isn't a "Snooze Button"

The on-ramp period aimed to make the transition to repayment easier on borrowers, as many have now been assigned new servicers or moved to a new address, attorney Michael Lux, who founded The Student Loan Sherpa, said. That means many could miss out on notifications about payments returning.

Despite this, Lux has cautioned borrowers from using this time to delay paying off their debt even longer.

"Using the on-ramp as an excuse not to make payments is a bad idea for many borrowers," Lux said. "Many of the struggling borrowers who have been using the on-ramp to avoid payments could have taken advantage of the SAVE plan and its interest subsidy."

"Put simply, the on-ramp exists so that mistakes don't hurt too much. Using it as a snooze button to avoid the student loan restart could be a costly error."

Similarly, the Income-Driven Repayment adjustment enrollment period will also close April 30. This adjustment was available to more than 3.6 million direct loan borrowers who had joined loan forgiveness programs. The repayment adjustments allow borrowers to get an extra three years of credit toward their loan forgiveness. For some, this means their debt will be forgiven in its entirety.

"It is a limited opportunity to move debt much closer toward forgiveness, and it is potentially life-changing for many," Lux previously told Newsweek.

The Fresh Start program, which helped borrowers in default, also will see its enrollment period come to an end in September.

Earlier this year, Biden announced 74,000 new borrowers would see their student debt disappear as the Education Department offered an additional $5 billion in relief. This included 44,000 public servants and tens of thousands of borrowers who made at least 20 years of payments on income-driven repayment plans.

"My administration is able to deliver relief to these borrowers—and millions more—because of fixes we made to broken student loan programs that were preventing borrowers from getting relief they were entitled to under the law," Biden said in a statement.

Options to Help with Student Loan Payments

Even if you don't qualify for the Biden administration's full student loan forgiveness plans, you can still take advantage of some new offerings courtesy of the Education Department.

For many borrowers, the SAVE plan will get them to see lower monthly payments or even early forgiveness down the road. Income-driven repayment plans also could decrease the amount you owe monthly depending on your income.

If you absolutely cannot pay your debt bill in one month, experts say reaching out to your loan servicer is the best first step to take. Many will work with you to develop a payment plan rather than have you stop all payments completely and enter default.

Other borrowers have had success refinancing their loans, as this allows them to continue to pay off their debts but at a lower interest rate. In unique cases, you may be able to get your loans deferred if you're experiencing financial hardship.

"My advice is to engage with your loan servicer and explore all available repayment options before the on-ramp period ends, especially if the SAVE plan applies to you," Zhong said. "This proactive approach can ensure you're on the most beneficial plan for your situation."