The 12-month grace period given to student loan borrowers concluded on September 30. This “on-ramp” period was designed to shield borrowers from default and maintain their credit scores, even if they were unable to make payments. 

“With the end of the on-ramp period, borrowers facing difficulties in making payments now risk significant consequences,” stated Persis Yu, deputy executive director at the Student Borrower Protection Center. 

There are about 43 million Americans collectively shouldering $1.5 trillion in student debt. Around eight million of these borrowers had enrolled in the SAVE plan, an income-driven repayment option designed to ease the burden of monthly payments. Unfortunately, this plan is currently caught in legal disputes and is on hold. 

As the on-ramp and Fresh Start programs come to an end, combined with the SAVE plan’s legal challenges, options for borrowers struggling to keep up with their loans are shrinking, as Yu has noted. It’s essential for those who can’t manage their payments to carefully consider their alternatives to avoid falling into default.

If you have student loans, here’s the essential information you need to know.

What was the on-ramp period? 

Essentially, the on-ramp period was a special allowance set up by the government to help student loan borrowers transition back to regular payments. This period lasted for 12 months, ending on September 30, 2024. During this time, if you missed a payment or paid late, it wouldn’t affect your loan’s status as delinquent, although interest would still accrue. It served as a buffer, allowing borrowers to adjust without facing immediate penalties. However, it’s important to note that only federal student loans paused during the pandemic were eligible for this on-ramp period, and there’s no extension planned for this transition phase.

The Education Department introduced this grace period to help borrowers adjust to making payments again after a three-year break due to the COVID-19 pandemic. Although borrowers were encouraged to continue making payments during this one-year window, interest kept piling up. 

“Typically, loans go into default if you miss payments for about nine months. However, during this grace period, missed payments didn’t push borrowers towards default and potential forced collections. But remember, skipping payments still means falling behind on your loan repayment,” explained Abby Shaforth, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.

With the end of this grace period, if you don’t make your student loan payments, your loan will become delinquent. If you neglect payments for nine months, it will go into default. 

If you’re struggling to afford your payments, you can look into applying for deferment or forbearance, both of which pause your payments. Keep in mind, though, that interest will still accumulate.

What happens if I don’t make my payments? 

When borrowers fail to make their payments, they risk slipping into delinquency, and eventually, default. This can have severe repercussions on your credit score and render you ineligible for future financial aid and various government benefits.

According to Shaforth, if a borrower misses a payment for just one month, they will start receiving email alerts. After three months of missed payments, loan servicers report the delinquency to credit bureaus, which can negatively impact your credit history. If the loan remains unpaid for nine months, it goes into default. 

If you’re having difficulty making payments, advisers often recommend checking if you qualify for an income-driven repayment plan. These plans adjust your payments based on your income and expenses. You can determine your eligibility by visiting the Federal Student Aid website. Additionally, if you’ve worked for a government agency or a non-profit organization, you might be eligible for the Public Service Loan Forgiveness Program, which can forgive your student debt after 10 years of service.

What are the consequences for a loan going into default? 

If your loan goes unpaid for 270 days, which is about 9 months, it will be marked as defaulted on your credit report. 

When a loan defaults, it enters collections. This can result in the government garnishing your wages without needing a court order, intercepting your tax refunds, and even taking a portion of your Social Security checks and other benefits.

If I can’t pay, what happens?

If your budget can’t accommodate loan payments right now, it’s crucial to understand how to avoid default and delinquency. Missing payments can damage your credit score and make you ineligible for further financial assistance. 

If you’re dealing with a short-term financial setback, you might qualify for deferment or forbearance, which temporarily pauses your loan payments. 

To see if these options are right for you, reach out to your loan servicer. Keep in mind, though, that interest will continue to accumulate during deferment or forbearance periods. This can affect potential loan forgiveness plans. Depending on the specifics, it might be wise to keep paying off the interest, even while your payments are on hold.

Can you explain income-driven repayment plans?

The U.S. Education Department provides several ways to help you repay federal student loans. The standard repayment plan sets your monthly payment so that you’ll pay off your debt in 10 years. However, if you find that amount hard to manage, there are income-driven repayment plans available. These adjust your monthly payments based on how much you earn and the size of your family. 

Income-driven repayment plans have been around for quite some time and generally limit your monthly payment to 10% of your discretionary income. If your income is low enough, you could end up with a payment as low as $0. What’s more, if you’re making these payments for 20 or 25 years, any leftover debt is forgiven.

What should I know about changes to the SAVE program?

Back in August, the Supreme Court put a pause on the SAVE plan—an income-driven repayment strategy designed to reduce payments for millions. This hold will stay in place while the legal battles unfold in lower courts. 

If you’re among the eight million borrowers who had already signed up for the SAVE plan, you won’t need to make your monthly student loan payments until the court reaches a decision. Any debt that had already been forgiven under the plan remains unchanged. 

The next hearing for this case is scheduled for October 15th of 2024.

Is the Fresh Start program still around?

The Fresh Start initiative, which granted relief to borrowers in default before the pandemic, also ended on Sept. 30. This temporary program offered a chance for those with defaulted loans to get back on track—removing their default status and giving them access to income-driven repayment plans, deferment options, and other beneficial programs.