Get ready for federal student loan forbearance to end on August 30, 2023.

[Update: This post was updated in June and August 2023 to note the Supreme Court decision on Biden's student loan forgiveness plan and the Department of Education's official dates for interest accrual and payments to restart]

After three years, Federal student loan forbearance finally has an official end date: August 30, 2023. 

Here’s everything federal student debt holders should know about the end of the payments pause including why the payment pause is ending, when federal student loan payments will officially resume, what the end of the payment pause will mean for loan forgiveness efforts, and what the end of the federal loan payment pause will mean for student debt holders.

Why is the federal student loan payments pause ending? 

At long last, the pause on federal student loan payments and 0% interest rates on federal student loans is ending… because of the debt ceiling. 

One of the terms of the debt ceiling deal between the White House and the G.O.P requires that the pause on federal student loan payments and the 0% interest rate on federal loans end 60 days after June 30, 2023. 

While it was already likely that loans would resume by the end of the summer–prior to this deal, the Department of Education had announced that payments would resume either 60 days after the Supreme Court rules on the forgiveness program or, if litigation is still pending, 60 days after June 30, 2023–the debt ceiling deal makes it official and prevents the Secretary of Education from extending the pause again without Congress’ approval. 

While it was always likely that loans would resume by the end of the summer, the debt ceiling deal makes it official and prevents the Secretary of Education from extending the pause again without Congress’ approval.

When will federal student loan payments officially resume? 

The pause on federal student loan payments will officially end 60 days after June 30 according to the language in the debt ceiling deal. This means that people with federal student loans should expect to begin making their minimum monthly payments again after August 30, 2023.  

Update: The Department of Education has since announced that interest will resume accruing beginning on September 1, 2023 and the first payments will be due starting October 1, 2023. Borrowers should receive their first statement at least 21 days before their first payment is due.

Will the end of the payment pause affect loan forgiveness? 

The end of the federal loan payment pause will not affect Biden’s student debt forgiveness plan, which could cancel up to $20,000 in student debt for eligible debt holders. Biden’s plan will remain on hold until the Supreme Court rules on it in the coming weeks.   

Update: On June 30, 2023, the Supreme Court ruled against Biden's student debt forgiveness plan.

What does this mean for student debt holders? 

Since March 2020, federal student loans have been on pause and federal student debtors have been able to put the money they would have used for student loan payments towards other areas of their lives.   

Now, after more than three years, nearly 44M federal student debt holders will need to prepare to make monthly payments on their federal student loans. For some, this may be the first time they’ll need to make monthly payments on their student loans; for others, they’ll be resuming payments on loans they may not have thought about for the past three years. Most of these borrowers (72%) are not financially ready to resume monthly payments on their federal student loans.   

According to an analysis by the New York Fed, lower-income, less educated, non-white, female, and middle-aged borrowers, in particular, are more likely to struggle with making minimum payments on their loans once forbearance ends. 

Update: A one-year "on-ramp" period will protect borrowers from the worst consequences of missing a full payment. Until Sep 30, 2024 missed or partial payments will not be reported as delinquencies to credit agencies. However, interest will continue to accrue on unpaid loans and credit agencies may apply other penalties for late or missed payments so borrowers should attempt to make their payments if possible or seek other relief measures, such as an IDR plan, if necessary.

What can companies do to help? 

Now is the perfect time for companies to consider adopting tax-free employer student loan contributions as a benefit. 

By adopting this benefit, companies can help their employees pay down their outstanding federal loan balances faster, saving them thousands of dollars in accrued interest and untold amounts of financial stress once the federal payment pause officially ends.  

If you are interested in having your company offer a student loan assistance benefit talk to our team here at Highway Benefits to learn more about how we can help. 

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‍Disclaimer: This article is purely information and is not intended as financial advice. If you have federal student loans and want to know how this will affect your particular situation, visit StudentAid.gov