Two major benefits of student loans end this week. Here’s what you need to know

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

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

These refund benefits expire at the end of the day today, September 30th. Starting in October, missing payments can lead to defaults, collections and damage to your credit report.

If your loans are in bad standing due to missed payments, you have until 3 a.m. ET (12 p.m. PT) on October 2 to apply for the Fresh Start program to get unpaid loans out of default. This deadline was previously September 30 and has just been extended today.

Here’s what these changes mean if you have student loans.

Missed student loan payments will be recovered from you

With student loan payments suspended for more than three years, the Department of Education offered borrowers a one-year step-up to help them prepare to make monthly student loan payments again. Although payments were still due during this time, your loans did not go into default or default if you were unable to pay them each month. Credit managers were also instructed not to report any missed payments to the credit bureaus during this period.

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

This will change from October 1. Late payments can now be reported to credit bureaus, which can hurt your credit score. If your payments are 90 days late, your loans become delinquent, and once you miss 270 days of payments, your loans are considered in default. Defaulting on student loans can have a host of negative consequences. Your debts may be foreclosed on and the government may attempt to collect payments by garnishing your wages, tax refunds, and Social Security benefits.

“Borrowers who default on their federal student loans could face more serious consequences once the ramp ends,” said student loan attorney Adam Minsky. “This can include late fees, negative credit reporting and non-payment.”

Exception: If you participate in the Saving for Valuable Education repayment plan, your student loan payments will remain suspended until the court decides the fate of this debt relief program.

The Fresh Start program is closed

The Fresh Start program offers borrowers an easy way to resolve their student loans. All you have to do is enroll in the program online or by phone before October 2 at 3 a.m. ET to get your loans back in good standing.

After you submit a Fresh Start application, the defaults will be removed from your credit report and you will once again have access to income-driven repayment plans, forbearance, forbearance, and forgiveness programs.

The government also automatically granted certain benefits to borrowers who had defaulted in the past year, such as pausing collection efforts and restoring access to their Federal Student Aid accounts. These benefits also end for your defaulted loans if you decide not to apply for a New Start.

How to Manage Your Student Loans in the Future

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

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

• Check the status of your student loan: Start by logging into your Federal Student Aid account to view your loan balances, interest rates, and repayment status. In your account you can also see who your credit managers are.
• To sign up for automatic payments: If you can afford your monthly payments, consider signing up for autopay. This way you don’t miss any bills and you get a 0.25% discount on your interest rate.
• Discuss the options with your loan manager: If you can’t afford the payments, call your loan servicer to talk about your options, ideally before you miss any bills. Although access to IDR plans is currently limited, the loan servicer can place your student loans in an interest-free forbearance arrangement.
• Get loans without default: If you have any loans in default, consider applying for the Fresh Start program before the close of business on September 30. If you miss this deadline, consider consolidation or rehabilitation to get them back in good standing. Consolidation offers a faster way to get out of default, but rehabilitation can remove the default from your credit report.
• Discover the PSLF buyback program: The PSLF program offers loan forgiveness after ten years of public service. If you are a teacher or public employee who has been employed for ten years, you may be able to “buy back” the months you spent in deferrals or deferrals to meet the “120 qualifying payments” requirement for PSLF. You can find more information about this PSLF buyback option here.