The resumption of student loan payment pause post a three-year pandemic has triggered concerns among borrowers like Azereth Deason who owes over $18,000 in undergraduate loans. Despite the looming debt many including Deason are grappling with immediate financial priorities amid the ongoing pandemic challenges.
Impact of Student Loan Payment Pause
Nearly 9 million borrowers, including Deason, have not made a student loan payment since the restart in October 2023. The student loan payment pause, implemented during the pandemic provided relief but has now led to a complex financial scenario for borrowers.
Thanks to a provision in the 2021 American Rescue Plan, eligible borrowers won’t be taxed on forgiven amounts through 2025 offering temporary financial respite. Experts acknowledge the challenges faced by borrowers navigating the restart of loan payments for over 20 million people simultaneously.
Executive Director of the Student Borrower Protection Center Mike Pierce warns of possible high levels of delinquency and default and underlines the need for understanding as borrowers adjust to the return of payments.
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Consequences of Non-Payment
While the Biden Administration’s repayment program prevents immediate penalties until Sep. 30, 2024, Alison Flores from H&R Block warns of potential tax refund garnishment for borrowers in default after 2025. Not paying off loans may impact credit scores and eligibility for broader loan forgiveness.
The December Department of Education report reveals 40% of borrowers hadn’t made payments by mid-November 2023. Among those not paying, 63% cited affordability issues indicating the financial strain faced by a significant portion of borrowers.
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