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Federal student loan bills resumed last month after a pause of more than three years. However, many borrowers may not be ready to dish out hundreds of dollars toward monthly payments yet.

For instance, if you’re trying to keep up with the growing costs of basic necessities like groceries and insurance, adding student loan payments to your list may seem impossible.

The Biden administration has rolled out a 12-month on-ramp that may help. This grace period can protect you from the harshest penalties if you’re unable to keep up with student loan payments.

Image source: Getty Images.

How Biden’s 12-month “on-ramp” works

The average monthly student loan payment is roughly $337 a month, which could be difficult to juggle with other commitments.

If you end up falling behind on payments, the 12-month on-ramp gives you extra time to pay your bill without going into default.

You don’t need to sign up for the on-ramp, according to the U.S. Department of Education. It automatically kicks in if you don’t pay. If your loans were eligible for the student loan freeze, you are eligible for this repayment grace period.

The on-ramp period started on Oct. 1, 2023, and it’s slated to expire Sept. 30, 2024. During that grace period, you won’t be subject to the harshest penalties if you’re scrambling to come up with funds to make payments.

What you should know

It’s not uncommon for the return of student loan payments to cause anxiety. Generally, if you skip payments, your loan becomes delinquent. If you are not able to make payments for 90 days or more, your loan servicer typically reports the delinquency to the national credit reporting agencies, which could negatively affect your credit score.

But this isn’t the case during the on-ramp period. Here are a few things you won’t have to worry about through Sept. 30, 2024:

Your missed payments won’t be reported to the credit bureaus as delinquencies.
If you don’t make payments when your bill is due, you won’t be considered in default on your student loan debt.
Your credit score won’t take a severe hit as a result of missed payments.

Don’t forget about student loan interest

It’s worth noting that the on-ramp is not the same as the interest-free pandemic payment pause.

During the multiyear payment pause, interest rates on federal student loans were set to 0%. That ended when the student loan payment pause expired at the end of August.

Interest started accruing again on federal student loans in September. The on-ramp doesn’t change that. Your interest will continue to add up on your loans during that time. Technically, your payments are still due, so interest will continue to accrue.

After the year-long on-ramp, you could be stuck with a bigger monthly payment due to interest. If you signed up for an income-driven repayment plan, though, your situation may be a little different.

Since the on-ramp period kicked off last month, you have some time to evaluate your financial situation and determine what makes sense for you. If you can afford to make student loan payments now, it could potentially save you some stress down the line. And the sooner you shed your student loan debt, the more time you can spend tackling other financial goals.

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