Do You Still Have to Repay Student Loans if the Federal Government Shuts Down?
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The looming government shutdown in Washington, D.C., which could begin as early as Sunday, has many people wondering what the impacts will be on their lives. This includes whether they still need to repay their federal student loans.
President Joe Biden’s administration is about to restart student loan payments for about 40 million Americans on Oct. 1. This looks likely to coincide with the start of a government shutdown. According to media reports, 90% of staff at the U.S. Department of Education could end up being furloughed in a shutdown. So, how will this impact student loan repayments?
Student Loan Repayments Are Still On
The short answer is that student loans still need to be repaid during a federal government shutdown, even if processing of the payments by the Department of Education ends up being delayed. In a statement to various media outlets, the Department of Education emphasized that “loan payments will continue to be due” even if the government is shut down.
Student loan repayments, including interest charges, had been paused since the onset of the Covid-19 pandemic in March 2020. The moratorium on repayments was extended eight times and lasted 42 months (three and a half years). On average, Americans saved $15,000 due to the pause in repayments and interest charges.
But now, the moratorium is over and borrowers are expected to begin paying back their student loans, whether there is a government shutdown or not. Government shutdowns in the past have not changed federal student loan borrowers’ obligation to continue making monthly payments.
Measures to Help
While student loan repayments will still begin on Oct. 1, the Biden administration has included several measures to help borrowers adjust to making payments again. These include what’s being called a 12-month “on ramp” to repayments, during which time borrowers will be shielded from consequences should they make late payments or miss a payment altogether.
For the next year, late payments on federal student loans will not be reported to credit bureaus and missed payments will not face the normal collection activity, including garnishment of wages. However, interest is once again being charged on most federal student loans and it will continue to accrue whether there is a government shutdown or not.
What’s Next
According to the Department of Education, 28 million notices concerning student loan repayments in October have been sent. People who receive one will have to make a payment in October even in the event that the federal government is shutdown. Whether politicians and bureaucrats are working or not, it will be business as usual for people who have a federal student loan to repay.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
