Many commentators and some media outlets have latched on to the restart “on-ramp” and concluded that borrowers can ignore their loans for another year.
This is objectively awful advice.
The on-ramp is helpful because mistakes will hurt borrowers less, but it doesn’t mean borrowers should ignore their loans.
Those who wait will miss out on some excellent programs.
Interest Consequences of Waiting to Restart Payments
Some of the articles suggesting that waiting is ok acknowledge that there will be interest charges.
It is accurate to say that interest will accrue, but it overlooks the missed opportunity.
Many of the borrowers most worried about restarting payments can potentially qualify for low monthly payments on the new SAVE plan and qualify for a large monthly subsidy to cover interest.
Missing this opportunity could be a costly mistake for many borrowers, especially the growing number that are eligible for $0 per month payments.
Delaying Payments Delays Forgiveness
Student loan forgiveness is an excellent opportunity for borrowers with unaffordable balances to eliminate debt.
Forgiveness isn’t a quick fix, but it offers a light at the end of the tunnel.
Those who ignore their loans at the restart will lose out on valuable progress toward loan forgiveness.
Suppose you skip the first six months of payments after the restart. That move would push back your eventual forgiveness by six months. As a hypothetical, let’s say it moves forgiveness back from spring 2033 until fall 2033. If your salary today is smaller than what you earn in 2033, the money you save today will be much smaller than the extra money you spend in 2033.
Waiting to restart student loan payments means a longer wait for student loan forgiveness. It also likely means spending more on the path to loan forgiveness.
Missing Out on Temporary Programs
In early 2024, the Department of Education will update IDR payment counts for all federal borrowers. This one-time adjustment will move many borrowers closer to loan forgiveness.
To qualify for this program, some borrowers must consolidate their loans by December 31, 2023. If this deadline is missed, borrowers will miss the adjustment benefits.
Dealing with student loans and learning the many new rules now in place is a headache. Waiting to restart payments doesn’t prevent this headache. It just delays it.
However, delaying the restart could mean missing out. Now is the time to suck it up and get things figured out. Waiting a year to get serious about student loans could mean missing out on a tremendous one-time opportunity.
Think About Commentator and Media Bias
In many of the articles suggesting that borrowers don’t have to do anything for a year, there is a subtle, or in some cases overt, criticism of the President.
By downplaying the risks associated with not restarting repayment, the critique cuts deeper.
No matter your politics, it shouldn’t impact your student loan strategy. You owe it to yourself and your family to repay the debt in the most efficient manner possible.
Saying there are zero consequences to not making payments could make for a nice sound byte, but it doesn’t qualify as insightful student loan guidance.
“On-Ramp” Purposes
If not restarting on time is such a big mistake, what is the purpose of the “on-ramp” to the restart?
The idea behind the on-ramp is to help borrowers smoothly transition back to repayment.
Many people will miss payments because they have new servicers, and important letters and emails get sent to old addresses.
Rather than tanking a borrower’s credit report, the Department of Education is trying to minimize the damage.
Many have argued that this program is misguided.
It might be.
However, the one thing we can say for sure is that it isn’t a blank check for borrowers to ignore their student loans for another year.
I’m using the On-Ramp.
My biggest concern is that apparently it was only an announcement and there is nothing that legally is telling the servicers they have to do this. That’s what my servicer is telling me. However, the student loan help organizations tell me that the servicers must comply. So which is it?
I’m a low original balance borrower with more than enough bona-fide payments already made, not including the IDR adjustment and the months that will come from that plus Covid, so I should be done when SAVE goes into full effect July 2024. That means that right now I really technically don’t owe anything. I would just be tying up money to get returned who knows when. And that’s if you trust the servicer to do it right.
I guess we’ll see. I can’t make the SAVE payments anyway, so it’s moot. I could pay half, which is what the July 2024 would be but even that should be moot. I’ll probably have to pay a few while they process the forgiveness but until then, no one is getting a payment from me.
The on-ramp would make sense in your situation, Brenda.
I’d also note that the servicers work for the Department of Education, not the other way around. The servicer will tell you that you have a balance due, but they shouldn’t report the missed payment per the on-ramp guidelines from the Department of Education.