US President Joe Biden is expected to approve the Biden-McCarthy debt ceiling plan on Saturday to avoid a default crisis in the United States. 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 was critical,” Biden said Friday night, during his first prime-time speech from the Oval Office. “The stakes couldn’t have been higher.”
Although the agreement focuses on increasing the debt ceilingit also includes changes to public programs like medical care for veterans and food aid for low-income households. The agreement will also end a pause in federal student loan repayments that began during the COVID-19 pandemic.
The bipartisan agreement calls for student borrowers to start repaying their loans as early as August 30. Although this delay is part of the president’s plan presented last November, there is no doubt that borrowers will have to start repaying their loans again. The text of the agreement prevents the Education Secretary from initiating another break.
More than 43 million Americans owe a total of $1.73 trillion in student debt, 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 constrained by their payments preventing them from proceeding with major life events like getting married or buying a home.
Here’s how the debt ceiling agreement will affect student loans and what you can do to prepare for repayments.
What will happen to student borrowers if the debt ceiling agreement is approved?
The text of the debt ceiling agreement says borrowers will have to start paying their student loan bills again 60 days after June 30, the date President Joe Biden originally scheduled last November. This would officially end the student loan pause that was initiated by President Donald Trump at the start of the COVID-19 pandemic.
The deal passed the Senate on Thursday and the House the day before. In an Oval Office speech Friday night, Biden called the deal critical and said the stakes couldn’t have been higher. He is expected to sign the bill on Saturday.
The deal prevents the US Department of Education from reinstating another break, meaning Congress would likely have to approve such a move. Education Secretary Miguel Cardona told the Senate last month that there would be no further recess until June 30.
This means that borrowers will have to start repaying their loans as early as August 30, and interest on student loans can once again accrue. The exact timing of your first payment will depend on the loan officer and the repayment plan you have agreed to.
Will there be student loan forgiveness?
Not under the debt ceiling agreement. However, it is stipulated that if Biden’s student debt cancellation program is approved by the Supreme Court, the cancellation will continue unabated.
Last August, Biden announced a plan to forgive up to $20,000 in student debt for those who qualified. The movement has received two legal challenges arguing that the cancellation exceeds the authority of the education secretary. The Supreme Court has until the end of June to rule on the matter.
How to prepare for student loan repayment.
With student loan repayments potentially restarting in less than three months, there are some things you can do now to prepare.
If you have savings set aside for student loan repayments, a good option is to take advantage of a high-yield savings account. Open an account and deposit money for student loans. The money will accumulate thanks to the higher interest rates, some of which can reach 4.85% APR.
If you have high-interest debt, such as credit card debt, work to pay down your balances or consolidate your debt into a more affordable monthly payment before you restart your student loans. A debt consolidation loan can help you consolidate higher interest variable debt into a low interest fixed rate payment and is useful if you need a few years to pay off your debt. But if you only need a few extra months to pay off your debt, a balance transfer card can give you temporary respite from interest charges while you work to pay off your balance.
Both options can help put you in a better financial position before loan repayments restart.
Still worried about paying off student loans?
If you have any concerns about repayment, it is imperative to speak with the loan officer.
There are options to change the repayment plan to something more affordable or to defer payments for a while.
The Department of Education’s student aid website also has information on different payment plans such as income-contingent repayment plans and loan consolidation options.