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Millions of federal student loan borrowers will start repaying their loans this month after a three-year pause because of the COVID-19 pandemic. The Education Department has implemented more flexible repayment options and expanded its income-driven repayment program to ease the transition. However, some borrowers will still face challenges.

Katelyn, a graduate with about $50,000 in student loans, has been saving during the payment pause, but remains anxious about resuming payments. She had used the last few years to stabilize her finances and create a safety net for emergencies. Repayment, she fears, will disrupt this progress.

In contrast, Mark, who owes roughly $35,000, has mixed feelings about the resumption. He has had more disposable income during the pause but acknowledges that the break may have made him somewhat complacent with budgeting. Resuming payments, he admits, will require readjusting his spending habits.

The Biden administration’s new income-driven repayment plan, known as Saving on a Valuable Education (SAVE), offers a more lenient approach. It reduces the minimum monthly payment amounts and shortens the time frame to have loans forgiven. This plan aims to provide relief for millions of borrowers by basing payments on income and family size, potentially lowering monthly bills.

Federal student loan interest accrued during the payment pause will not compound under the SAVE plan. If a borrower’s monthly payment isn’t enough to cover the interest, the government will cover the remaining portion, preventing loan balances from growing.

Despite these new measures, some borrowers remain skeptical. Emma has around $20,000 in student loans and plans to enroll in the SAVE program. While she finds the new plan helpful, she remains concerned about her long-term financial stability. She plans to budget carefully and seek additional sources of income to ensure she doesn’t fall behind.

The federal government has also introduced a temporary “on-ramp” period from October 2021 to September 2024, during which missed payments will not be reported to credit bureaus or considered in default. This aims to provide a cushion for borrowers adjusting to the resumption of payments.

Experts stress the importance of communication between borrowers and their loan servicers to navigate the repayment process smoothly. Financial advisors recommend creating a budget that prioritizes loan payments and seeking options such as deferment or forbearance if experiencing financial hardships.

The return to repayment is expected to impact the economy. Some economists predict a reduction in consumer spending, particularly among younger borrowers. However, the broader economic effects are still to be seen. Policymakers are closely monitoring the situation to determine if additional measures are needed to support borrowers.

Student debt remains a critical issue in the United States, with over 43 million borrowers collectively owing about $1.75 trillion. The resumption of payments brings the debate about long-term solutions and potential reforms to the forefront. Some advocates are calling for more comprehensive measures, including broad loan forgiveness and lower tuition costs to address the root causes of student debt.

As borrowers prepare to resume payments, the focus is on ensuring that they have the necessary support and resources to manage their debt effectively. The coming months will reveal how successful these new repayment options and policies will be in easing the transition.

Source: CNN, NPR