Written By Caitlin See
Federal student loan payments have resumed after a three-year pause due to the COVID-19 pandemic. However, both loan servicers and borrowers seem unprepared for the restart. For example, federal student loan servicers are resorting to administrative forbearance to cover the widespread payment miscalculations. To help the transition, the Biden Administration has created a temporary 12-month student loan “on-ramp” repayment program to shield borrowers from the worst consequences of missed payments.
While an additional year without payments sounds great on the surface, you could be making a costly mistake. If you skip payments during the on-ramp, you’ll miss out on student loan forgiveness credit, and your interest will continue to accrue, increasing your overall loan amount.
However, the student loan on-ramp could provide a much-needed cushion for certain borrowers. Here’s what you need to know about the on-ramp and recommendations for what most borrowers should do instead.
What is the student loan on-ramp repayment program?
The Department of Education is providing a temporary on-ramp from October 1, 2023, to September 30, 2024, to protect federal borrowers from the worst consequences of not making their student loan payments.
During this 12-month transition period, servicers aren’t reporting missed, late or partial payments as delinquent. Therefore, missed payments shouldn’t lead to negative credit reporting or defaulting on your loans.
How the student loan on-ramp transition period works
Under normal circumstances, missed payments are considered delinquent and reported as such to credit reporting agencies. But during the on-ramp period, your loan servicer will automatically put your loan in a forbearance status retroactively for any payments you miss — preventing the missed payments from being reported as delinquent. This means:
- Your account won’t be considered delinquent and will be made current.
- Any missed payments won’t lead to negative credit reporting.
- Your loans won’t be sent to a collection agency for being in default.
That said, student loan payments are still due, and interest will continue to accrue for the entirety of the on-ramp period. So, here are a few things to be mindful of:
- Your loan servicer might still send you statements showing you’re delinquent for missed payments.
- Non-payment will result in owing more overall. If you aren’t enrolled in an income-driven repayment plan (IDR), your monthly payment may increase as interest grows. However, if you’re on an IDR plan, your monthly payment won’t go up if your payments don’t cover interest.
- Missed payments generally won’t count toward student debt forgiveness under the Public Service Loan Forgiveness program (PSLF) or 20- to 25-year IDR forgiveness.
The on-ramp is meant to serve as a pseudo-grace period to help borrowers transition into repayment after over three years of no payments. But that doesn’t mean there are no consequences. It just means you won’t tank your credit score or put your account into default status due to missed payments.
A quick note on missed payments and credit reporting…
The Department of Education has said that missed payments during the on-ramp period won’t lead to negative credit reporting. But they slipped in a potentially concerning statement when explaining how the on-ramp works.
The StudentAid.gov website currently states, “We will not report you as delinquent during the on-ramp, but we do not control how credit scoring companies factor in missed or delayed payments.”
Does this mean there’s a chance some borrowers could end up experiencing negative consequences that are outside of the Department of Education’s control? Hopefully not.
But historically, loan servicers have been terrible at their jobs. Plus, the Department of Education made it a point to make it clear they don’t control how credit bureaus factor in missed payments — which sends mixed signals at best.
So, we’re advising borrowers to err on the side of caution by requesting a formal administrative forbearance. That way, they have it specifically listed on their account to prevent any mishaps in reporting.
Get Started With Our New IDR Calculator
Does it make sense to skip payments during the on-ramp period?
The Department of Education states that missed payments during the on-ramp transition period will not generally count toward PSLF or IDR forgiveness. Therefore, you could miss out on up to 12 months’ worth of forgiveness credit, which is particularly concerning for PSLF borrowers who only need 10 years of qualifying payments.
Instead of skipping payments for the next year and forgoing valuable forgiveness credits, most borrowers will benefit more from enrolling in an IDR plan, such as the new Saving on a Valuable Education (SAVE) plan.
Under the SAVE plan, borrowers receive a larger poverty exemption of 225% (compared to 100% to 150% with other IDR plans) and a more favorable repayment calculation based on 5% to 10% of discretionary income, depending on whether you have undergraduate versus graduate loans. Plus, there’s an interest subsidy if your monthly payments aren’t enough to cover the accruing interest.
Note that borrowers enrolled in other repayment plans will immediately begin accruing interest, which will result in owing more on your student loans.
There might be an argument for loan forgiveness credit in the future
It’s probably best to remain pessimistic on this matter and assume missed payments during the on-ramp won’t count toward forgiveness. But if loan servicers code that period of time as an “administrative forbearance”, it might open the door to allow it to count toward or be requested or reconsidered for loan forgiveness credit in the future, particularly with PSLF, if an argument can be made that you weren’t able to pay due to a loan servicer error.
There’s also supposed to eventually be a process where borrowers can pay for previous periods of forbearance or deferment to have those months count toward PSLF. So, that’s also something to pay attention to in the future if you decide to use the on-ramp.
Need help deciding the best route for student loan repayment?
Most student loan borrowers will benefit more from enrolling in an IDR plan with loan payments as low as $0 and the opportunity for loan forgiveness. However, the on-ramp could be useful if you’re unable to get in contact with your loan service to address payment concerns.
Loan servicers are completely overwhelmed right now, often resulting in borrowers waiting on the phone for hours to speak with a representative. So, you might benefit from the on-ramp if you really are struggling to make the payment and can’t get someone on the phone to assist.
If you aren’t sure what to do or want help choosing the best repayment strategy for your federal and private student loan debt, schedule a consult with our student debt experts.
FAQ for student loan on-ramp repayment program
If your student loans were eligible for the payment pause, you're automatically eligible for the on-ramp transition period. Therefore, you don’t need to request or enroll in anything. You simply don’t make your payment, and your loan servicer will retroactively put your loan in forbearance status.
Your student loan payments are still due during the on-ramp period. Therefore, interest will continue to accrue on your loans. If you aren’t enrolled in an IDR plan, this could cause your monthly payment to increase.
The Department of Education states that missed, late or partial payments during the on-ramp period won’t be reported as delinquent. Therefore, your credit shouldn’t be negatively impacted by missed payments during the on-ramp.
However, there is some concern that some borrowers could experience negative consequences outside of the Department of Education’s control due to the language used on the StudentAid.gov website.
Missed payments during the on-ramp period won’t generally count toward PSLF or IDR loan forgiveness.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
