If enacted, the proposed rule would provide clarity to a fast-growing industry known as Earned Wage Access, which has been compared to payday lending. The agency wants borrowers to be able to “easily compare products” and to prevent “race-to-the-bottom business practices,” CFPB Director Rohit Chopra said on a call with reporters.

Earned Wage Access apps have been around for more than a decade, but they gained popularity in the years prior to the pandemic and since. The apps extend small short-term loans to workers in between paychecks so they can pay bills and meet everyday needs. On payday, the user repays the money out of their wages, along with any fees. Between 2018 and 2020, transaction volume tripled from $3.2 billion to $9.5 billion, according to Datos Insights.

The CFPB said their research shows the average worker who uses Earned Wage Access takes out 27 of these loans a year, meaning one loan for almost every biweekly paycheck. This can look similar to a revolving credit card balance. But with fees that would equal an average Annual Percentage Rate (APR) of over 100%, the loans have interest rates higher than the most expensive subprime credit card. Most of this interest comes from fees to expedite access to paychecks, the CFPB found.

The typical user of these apps earns also less than $50,000 a year, according to the Government Accountability Office, and has experienced the pinch of two years of high inflation. Many of the apps charge monthly subscription fees and most charge mandatory fees for instant transfers of funds.

Christine Zinner, policy counsel at Americans for Financial Reform, said the paycheck advance products “are nothing more than workplace payday loans, with consumers (being) more easily preyed upon since the money is only a tap away on a cell phone.”

“People can easily become trapped in a cycle of debt by re-borrowing, requesting advances 12 to 120 times each year, just to pay basic household expenses and make ends meet,” she said.

The CFPB also said it is paying close attention to the “tips” many of the apps request when providing advances on paychecks. On the call, Chopra called the practice odd, noting that many paycheck advance companies bring in “substantial revenues” from the so-called tips.

In 2021, the California Department of Financial Protection and Innovation found “users often feel compelled to leave (tips) due to applied pressure tactics like… claiming tips are used to support other vulnerable consumers or for charitable purposes.”

With the interpretive rule, the CFPB is clarifying that “if workers obtain money they are required to repay out of their paychecks, this is a loan under federal law, (and the companies) must disclose an interest rate.”

This means that tips and fees for expedited transfers must be incorporated into the cost of the loan, under the disclosure scheme mandated by the Truth in Lending Act, and those costs may not be treated as “incidental, even if the amount is variable,” Chopra said.

Some Earned Wage Access companies have argued these fees should not be treated as part of the standard APR calculation on the loans. When Connecticut passed a law capping the fees the apps could charge under its state usury limits, at least one Earned Wage Access company, EarnIn, stopped operating in the state. Asked why, EarnIn CEO Ram Palaniappan said it was no longer “economically viable.”

The agency will take comments on the proposed interpretive rule until the end of August.

“Today’s report and rule are important steps for the CFPB to ensure the market is working,” Chopra said. “We want to see the market compete down costs for employees and employers.”

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The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

NEW YORK (AP) — Much like nutritional labels on food products, “broadband labels” for internet packages will soon tell you just what is going into the pricing of your service, thanks to new rules adopted by the Federal Communications Commission this week.

“If you’ve ever shopped for home or mobile internet, you can understand how hard it can be to understand what you’re actually paying for,” said Jon Donenberg, Deputy Director of the White House National Economic Council, on a call with reporters. “The broadband nutrition label is a tool that can help consumers make sure they have a clear, straightforward explanation of home and mobile services before signing up for anything.”

Following the design of FDA food labels, these broadband labels will provide easy-to-understand, accurate information about the cost and performance of high-speed internet service to help consumers avoid junk fees, price hikes, and other unexpected costs.

Internet service providers selling home access or mobile broadband plans will be required to have a label for each plan beginning April 10.

The labels will be mandated to appear at any point of sale, including online and in stores, and they will be required to disclose all pricing information — including introductory rates, data allowances, and speeds. The labels will also include links to information about network management practices and privacy policies.

Here’s what you need to know.

WHAT’S BEHIND THE NEW LABELING?

Hidden fees and unexpected rate hikes have dogged consumers shopping for internet service for years, and the Biden administration has been cracking down on “junk fees” (opaque and misleading fee structures) across industries — including banking, hotel and airline pricing, and utility and phone services — for the past several years.

On a call Tuesday, a spokesperson for the FCC clarified that the labels “cannot be buried in multiple clicks” or hidden in a way that a consumer might miss.

“Fees can make it hard to understand the true cost of an internet plan,” said Donenberg, adding that the agency is “committed to rooting out surprise junk fees that some companies pile on to your bills.”

WHAT INFORMATION WILL EACH LABEL CONTAIN?

1. Monthly price and contract length 2. Whether that price will change after a certain period and what it will change to 3. Complete list of monthly and one-time fees, and early termination fee 4. Whether the company participates in the Affordable Connectivity Program and link to check if one qualifies 5. “Typical” download and upload speeds, and latency 6. Data cap and price beyond that cap 7. Links to network management (e.g., zero rating and content blocking) and privacy policies

WHAT IF I DON’T UNDERSTAND SOMETHING ON THE LABELS?

A glossary is available to help consumers better understand the information displayed on the label.

WHAT IF A PROVIDER DOESN’T DISPLAY THE LABEL?

If a provider does not display their labels or posts inaccurate information about its fees or service plans, consumers can file a complaint with the FCC Consumer Complaint Center.

WHEN DO THESE RULES TAKE EFFECT?

While many providers will begin displaying their labels in April, some firms with less than 100,000 subscribers will have until Oct. 10, 2024, to comply with the FCC rules.

“The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.”

According to a report from the New York Federal Reserve Bank, the real net worth of white individuals outgrew that of Black and Hispanic individuals by 30 percentage points and 9 percentage points respectively, from the first quarter of 2019 through the second quarter of 2023.

The period featured a remarkable level of government financial support and, after the initial shock of the pandemic, a surprisingly strong job market. The unemployment rate for Black Americans in particular is now at 5.3%, near a record low, compared to an overall unemployment rate of 3.7%. Earnings for the typical Black full-time worker are up 7.1% since before the pandemic.

Closing the wealth gap is more difficult because a significantly larger number of white households traditionally have money in stocks and mutual funds. A separate Fed survey shows that as of 2022, about 65.6% of white households had investments in stocks, compared with 28.3% for Hispanic households and 39.2% for Black households.

“The study really shows the difference between making gains when it comes to income, and closing that gap, versus when it comes to wealth,” said Janelle Jones, Vice President of Policy and Advocacy at the Washington Center for Equitable Growth.

While government support such as increased unemployment benefits and stimulus checks helped stave off a COVID-induced recession, financial asset prices rose so significantly with the reopening of the economy through 2021 that racial wealth disparities increased. And while those market-linked assets did fall in 2022 when the Federal Reserve rapidly increased interest rates, “those declines did not fully offset the earlier rises,” according to the New York Fed.

“Much of the divergence in net worth by race and ethnicity since 2019 can be attributed to divergence in the real values of financial asset holdings,” wrote the report’s authors — including the fact that Black households have more wealth concentrated in pensions than in stocks, mutual funds and exchange-traded funds, or ETFs.

More than 50% of Black financial wealth is invested in pensions, the New York Fed found. Less than 20% of Black wealth is stored in private businesses, corporate equities, and mutual funds. In contrast, less than 30% of white financial wealth is invested in pensions, with about 50% invested in businesses, equities, and mutual funds.

“Black workers are still more likely to be unionized, which may play a part in the pension story,” said Jones. “But how folks are exposed to the ability to invest in the stock market — whether or not it’s something they grow up doing — we know that’s different for white families than for people of color.” Black family members are less likely to get an inheritance, she said.

During the pandemic, the real value of Black-held financial assets dropped in 2022 to below its 2019 level and continued to decline steadily, while the real value of Hispanic-held financial assets dipped below its 2019 level in 2022 and stagnated. Neither group’s real financial assets have recovered to their 2019 values.

Owning a business is another component of financial wealth, and separate data show Black-owned businesses had a tougher time during the pandemic.

While less than 10% of all U.S. business owners are Black, Black-owned businesses were also more concentrated in industries hardest hit when COVID first spread, according to Economic Policy Institute analysis of government data. In April of 2020, more than 40% of Black business owners reported they were not working, compared with only 17% of white business owners.

The industries with the largest total job losses early in the pandemic were also sectors where more Black-owned businesses are concentrated — accommodation, food services, retail, health care, and social assistance. About 28% of Black-owned businesses are found in these industries, compared with just under 20% of white-owned businesses, according to the Bureau of Labor Statistics.

Still, Treasury Deputy Secretary Walley Adeyemo said Wednesday that economic conditions are improving for Black households, citing rising employment and wages for Black Americans since before the pandemic, and an increase in Black business ownership and participation in the stock market.

Adeyemo suggested that some “policy prescriptions” might be needed to even out the distribution of financial wealth in the U.S.

“The gap between Black and white wealth in America is still too great,” he said.

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“The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.”

If a bank temporarily lends a consumer money when their account has reached a zero balance, the consumer is typically responsible for paying back both the overdrawn amount and an additional fee, which can be more than the original amount charged. In one example often cited by opponents of the fees, a $3 cup of coffee can end up costing someone $30.

Here’s what to know.

When there isn’t enough money in an account to cover a transaction or withdrawal, but the bank allows it anyway, the customer is technically “overdrawn,” and most banks charge them a fee. About 91% of accounts have this fee structure, according to the most recent Bankrate research. Consumer advocates argue this is an extension of credit, and should be regulated as such.

The fees originated during a time when consumers wrote and cashed checks more frequently — so that the checks would clear instead of bouncing, if there was an issue of timing — but banks steadily increased the fees in the first two decades of the 2000s. Eventually, the fees provided financial institutions with billions of dollars in revenue. The fees, as high as $39 per overdraft, disproportionately affect banks’ most cash-strapped consumers. A majority of overdrafts (70%) are charged to customers with average account balances between $237 and $439, according to the Consumer Financial Protection Bureau (CFPB).

The simplest way to avoid overdraft fees is to find an account that does not charge them. Online banks, in particular, now offer many accounts without these fee structures. Capital One and Ally Bank also offer consumers accounts that will not charge overdraft fees.

The second thing to do is to opt out of the service. When opening a new bank account, you’ll be given the option to decline “overdraft coverage.” If you choose not to accept the service, your bank won’t cover overdrafts and will instead return any payments that can’t be covered as unpaid — but you won’t be charged the overdraft fee.

Other steps include setting up an alert for when your balance falls below a certain amount, and linking savings accounts to checking accounts, so that your own money — not the bank’s — will cover any shortfalls. Some banks call this “overdraft protection,” rather than “overdraft coverage.”

If you overdraw your account for the first time, a call to your bank could get the charge removed. Even on a second or third offense, some banks will work with customers to reverse or waive charges.

There are also app-based services that will negotiate with a bank on your behalf. In each case, the process can take up to 90 days.

Increasingly, banks are offering grace periods to customers in the event of an overdraft, depending on the account. In these cases, customers can avoid an overdraft fee as long as they bring their account balance back to a positive amount within a certain time frame, such as 48 hours.

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The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

The short-term loans often come with consumer-friendly interest rates and allow shoppers to make an initial payment at checkout, then pay the rest in installments, typically over a few weeks, even months. That can be appealing to a shopper buying multiple gifts for family and friends during the holidays, particularly if they’re balancing other debt such as student loans or credit cards.

Data shows younger consumers and those with difficulty accessing credit use the loans most frequently. Used responsibly, the installment plans increase financial inclusion, according to the Federal Reserve Bank of New York. But the Fed and some analysts say key features of the plans can make borrowing too easy and saddle consumers with excessive debt.

Short-term installment loans drove $6.4 billion of online spending in October, up 6% year over year, according to a recent Adobe Analytics report on online shopping. Adobe expects usage to peak in November with spending of $9.3 billion, including a single-day record of $782 million on Cyber Monday. Overall, Adobe estimates one in five Americans plan to use buy now, pay later plans to purchase holiday gifts.

Vivek Pandya, lead analyst for Adobe Digital Insights, said that “rising interest rates, inflation in food prices, and resuming student loan repayments” have increased costs for consumers, but “data has shown that the consumer remains resilient heading into the big holiday season and (they) are embracing every opportunity to manage their budgets in more efficient ways.”

‘Buy now, pay later’ loans tend to follow a shared model. The lender runs a soft credit check on applicants, then asks for a down payment at the time of purchase along with an agreement to make between four and six payments at two-week intervals, though terms vary. Zero-interest loans are common initial offerings.

If a customer pays late or misses payments, however, they can be shut out from using the app, or face interest or fees. Sometimes these are flat amounts, as much as $25, and sometimes they’re calculated as a percentage of the outstanding loan.

Pay-in-installment companies collect fees from merchants who are grateful for the increased business. Retailers have found that customers offered a buy now, pay later option are more likely to have bigger cart sizes or to convert from browsing to checking out. In its report, the Fed cites research that finds that customers spend 20% more when buy now, pay later is available.

Most of these short-term loans are not reported to the three main credit bureaus. Consumers appreciate that because the loans don’t affect their credit scores. But this is the feature of buy now, pay later that worries experts the most because it can lead to “loan-stacking” — when consumers take on debt with multiple lenders.

Demishia Alford, 26, of Greensboro, North Carolina said she uses the short-term loans for household goods, clothes, and plane tickets. For the holidays, she plans to use the loans to buy a new crate for her puppy, electronics, and other gifts for her in-laws, nieces, and nephews. She said the retailers she patronizes include Express, Shein, and Walmart.

According to Alford, her short-term loans average about $200 or less and help her walk a financial tightrope of sorts. She’s paying down student loans, a car loan, and several thousand dollars of credit card debt. Both her credit cards are nearly maxed out.

“I try to stay on top of it, especially in today’s economy,” she said. “Debt creeps up on you.”

Asked whether she thinks she’ll continue to use installment plans, Alford said, “Hopefully not. Hopefully I’ll be in a place where I don’t have to break up payments, and I’m not working on a budget soon.”

Kevin King, vice president of credit risk at LexisNexis Risk Solutions said that because pay-in-installment loans often go unreported to credit bureaus, and the companies don’t report to one another, lenders face an underwriting challenge. The opacity of the space, combined with the increasing number of companies offering the loans, compounds risk.

“Right now, it’s really tough for BNPL lenders to know that Kevin may have taken out a loan from four other BNPL lenders earlier this week,” he said. “That can let consumers trap themselves in debt.”

Alford — whose use of buy now, pay later loans at multiple companies is not reported to the credit bureaus, potentially masking her credit-worthiness — is an example of the type of borrower that King worries about.

LexisNexis Risk Solutions provides many buy now, pay later lenders with alternative credit scores for assessing consumers seeking loans, including those who may not have a traditional credit score. In new research, the company found that pay-in-installment loans attract more non-prime (including subprime and near prime) credit applicants than traditional banking products and that the users are more than twice as likely to be under 35.

Jessica Sarceda, 28, of Santa Monica, California, said she’ll be using installment loans with four payments for her holiday shopping this year – mostly gifts of shoes and clothes for family and friends. She said she decided to use Zip, another company that provides short-term loans, after using the app to update her wardrobe each season. She prefers spreading out the payments to using a credit card.

“I wouldn’t say I use it for large expenses,” Sarceda said. “Payments are hundreds of dollars, not thousands. And it’s usually event-based. If there’s a music festival, or a wedding – that’s typically where I’ll use Zip.”

Starting again last month, after a pandemic-linked pause, Sarceda has also begun paying down her student loan.

For the holidays, Allison Williams, 28, in Amelia, Ohio, said she’ll be using pay-in-four loans to get her two-year-old daughter a swing set for the yard. She also plans to buy Nike merchandise for her six brothers and sisters. In the past two years, Williams has used buy now, pay later plans at stores including Target, BoxLunch, EyeBuyDirect, and Skims. She typically uses multiple lenders — Klarna, AfterPay, Sezzle, and PayPal’s Pay in 4 — for larger purchases, she said, especially when buying many items from the same retailer.

Though Williams has a credit card, she says she uses it “for things like gas and groceries to make sure I’m keeping up with my credit. If I have extra money, I just pay off (the pay-in-four loans) early.”

Jinal Shah, Chief Marketing Officer for Zip, said pay-in-four lenders are able to see quickly when borrowers are missing or unable to make payments, as happened a year and a half ago, when inflation first took a toll, and the companies adjust their underwriting accordingly, including by removing users from the platform.

“Since payments are in two-week increments, it gives us an opportunity to be ahead of the pulse,” she said. “It has more built-in signals to help us manage than with credit cards.”

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The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

As household expenses outpace earnings, many are expressing concern about their financial futures. What’s more, for most Americans, household debt has either risen in the last year or has not gone away.

Steve Shapiro, 61, who works as an audio engineer in Pittsburgh, said he’d been spending about $100 a week on groceries prior to this past year, but that he’s now shelling out closer to $200.

“My income has stayed the same,” he said. “The economy is good on paper, but I’m not doing great.”

About 8 in 10 Americans say their overall household debt is higher or about the same as it was a year ago. About half say they currently have credit card debt, 4 in 10 are dealing with auto loans, and about 1 in 4 have medical debt. Just 15% say their household savings have increased over the last year.

Tracy Gonzales, 36, who works as a sub-contractor in construction in San Antonio, Texas, has several thousand dollars of medical debt from an emergency room visit for what she thought was a bad headache but turned out to be a tooth infection.

“They’ll treat you, but the bills are crazy,” she said. Gonzales said she’s tried to avoid seeking medical treatment because of the costs.

Relatively few Americans say they’re very or extremely confident that they could pay an unexpected medical expense (26%) or have enough money for retirement (18%). Only about one-third are extremely or very confident their current financial situation will allow them to keep up with expenses, though an additional 42% say they’re somewhat confident.

“I’ve been looking forward to retirement my entire life. Recently I realized it’s just not going to happen,” said Shapiro, of Pittsburgh, adding that his wife’s $30,000 or so of student debt is a financial factor for his household. The couple had hoped to sell their house and move this past year, but decided instead to hold on to their mortgage rate of 3.4%, rather than facing a higher rate. ( The current average long-term mortgage rate reached 7.79% this month. )

About 3 in 10 Americans say they’ve foregone a major purchase because of higher interest rates in the last year. Nearly 1 in 4 U.S. adults have student debt, with the pandemic-era payment pause on federal loans ending this month, contributing to the crunch.

Will Clouse, 77, of Westlake, Ohio, said inflation is his biggest concern, as he lives on a fixed income in his retirement.

“A box of movie candy — Sno-Caps — that used to cost 99 cents is now a dollar fifty at the grocery store,” he said. “That’s a 50% increase in price. Somebody’s taking advantage of somebody.”

Yet even as Americans have expressed gloomy sentiments about the economy, many have continued spending, which drove a strong quarter of growth from July though September, when the economy expanded at an annual pace of 4.9%.

Even so, wages and salaries have largely trailed inflation since the pandemic, leaving most households worse off, though economists debate which measures are the best to use. In the past 12 months, however, average hourly pay has started to pull ahead of prices, rising 0.5% faster.

Americans are generally split on whether the Republicans (29%) or the Democrats (25%) are better suited to handle the issue of inflation in the U.S. Three in 10 say they trust neither party to address it.

Geri Putnam, 85, of Thomson, Georgia, said she’s been following the ongoing auto workers strikes with sympathy for the workers’ asks.

“I don’t think it’s out of line, what they’re asking for, when you see what CEOs are making,” she said. “I think things have gotten out of control. When you can walk into a store and see the next day, across the board, a dollar increase — that’s a little strange. I understand supply and demand, the cost of shipping, et cetera. But it seems to me everyone’s looking at their bottom lines.”

Putnam also said she sees her six children struggling financially more than her generation did.

“They all have jobs and have never been without them,” she said. “They’re achievers, but I think at least two or three of them will never be able to buy a home.”

A slight majority of all Americans polled (54%) describe their household’s financial situation as good, which is about the same as it’s been for the last year but down from 63% in March of 2022. Older Americans are much more confident in their current finances than younger Americans. Just 39% of 18- to 29-year-olds describe their household finances as good, compared to a majority (58%) of those who are 30 and older. People with higher levels of education or higher household incomes are more likely than Americans overall to evaluate their finances as solid.

About three-quarters of Americans describe the nation’s economy as poor, which is in line with measurements from early last year.

Among those who are retired, 3 in 10 say they are highly confident that there’s enough saved for their retirement, about 4 in 10 are somewhat confident, and 31% are not very confident or not confident at all.

Clouse, of Ohio, said the majority of his money had gone towards caring for his wife for the past several years, as she’d been ill. When she passed away this past year, his household lost her Social Security and pension contributions. He sees the political turmoil between Republicans and Democrats as harming the economy, but remains most frustrated by higher prices at the supermarket.

“Grocery products going up by 20, 30, 40%. There’s no call for that, other than the grocery market people making more money,” he said. “They’re ripping off the consumer. I wish Mr. Biden would do something about that.”

About 4 in 10 Americans (38%) approve of how Biden is handling the presidency, while 61% disapprove. His overall approval numbers have remained at a steady low for the last several years. Most Americans generally disapprove of how he’s handling the federal budget (68% disapprove), the economy (67%), and student debt (58%).

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The poll of 1,163 adults was conducted Oct. 5-9, 2023, using a sample drawn from NORC’s probability-based AmeriSpeak Panel, designed to represent the U.S. population. The margin of sampling error for all respondents is plus or minus 3.9 percentage points.

She’s one of 804,000 borrowers who will have a total of $39 billion forgiven under a one-time adjustment granted by the Biden administration. It’s for people in income-driven repayment plans who have been paying back loans for 20 or 25 years but who never received credit for late or partial payments. It also credits borrowers for periods before the pandemic when they were allowed to pause or reduce payments due to financial hardships.

To correct mistakes by loan servicers, the Department of Education is retroactively adjusting accounts, resulting in forgiveness. The department says 95% of those who qualify have now been informed of the cancellation.

Engstrom didn’t immediately believe it when she saw her balances had been erased, but she eventually found a letter from the Federal Student Aid office dated August 28 that confirmed the cancellation was real.

“Info: Your student loans have been forgiven,” the letter read. “Congratulations! The Biden-Harris Administration has forgiven your federal student loan(s) listed below with Edfinancial Services in full.”

The letter listed two original federal loan amounts of $30,067.45 and $45,729.97 — now gone, along with accumulated interest that more than doubled her total.

Like many borrowers who now qualify for cancellation, she had paid on them for decades, but had never received relief because of administrative and servicer errors.

“I didn’t realize what a lift I would get,” Engstrom said, of the moment of realization. “I thought it would be forgiven when I died.”

Engstrom worked until recently as a substitute teacher and teacher’s aide, and had previously been a professional photographer.

“It was a burden,” she said, of the debt. “I couldn’t think of it all the time. It was just there in the background.”

Patricia Vener-Saavedra, 70, an artist based in Hamden, Connecticut, had more than $88,000 forgiven.

“It’s a relief it’s no longer hanging over me,” she said, adding that it means “hope for everyone else, that they can get out of this situation.”

She worries, though, about her nephew, who’s looking to go to college part-time, which means he’ll be taking out private loans, rather than public ones.

“He’s going to get himself into the situation we’re all trying to get out of,” she said.

Vener-Saavedra said her debt had made it difficult for her to build credit or get a loan to buy a car in recent years. Attempting to get a mortgage, she eventually turned to a “fly-by-night” company and asked her sister to act as a co-signer, which affected her sister’s credit, she said.

“I looked into getting a different mortgage, now that my loans are gone,” she said, “but the rates are so high, it doesn’t make sense.”

The White House has said it will continue to contact borrowers who qualify for cancellation based on their income-driven payment counts through the end of the year, every other month, as new borrowers become eligible. Here’s what to know about the cancellation:

WHO QUALIFIES?

Borrowers who have made 20 or 25 years of qualifying payments (depending on the repayment plan) qualify, if they hold direct loans or Federal Family Education Loans with the Education Department, including borrowers with Parent PLUS loans.

WHEN WILL THESE BORROWERS RECEIVE FORGIVENESS?

The Education Department said it will continue to inform borrowers who qualify through the end of this year, and that discharges of the debts will take place roughly 30 days after those emails are sent. If you received an email or letter in August, for example, your loan balances should go to zero in September.

WHAT IF I’M WAITING FOR AN UPDATED PAYMENT COUNT TO DETERMINE IF I QUALIFY?

The Department of Education has said it will continue to update borrowers’ payment counts once they have processed loan cancellation for borrowers already eligible for debt forgiveness based on their current payment counts.

WHERE CAN I LEARN MORE?

The official Federal Student Aid guide to the Income Driven Repayment adjustment is a good resource for updates.

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The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

NEW YORK (AP) — After three years, the pandemic-era freeze on federal student loan payments will end this fall and more than 40 million Americans will have to start making payments again under the terms of a debt ceiling deal approved by Congress.

Student loan interest will start accruing on September 1 and payments will restart in October. That means tough decisions for many borrowers, especially those in already-difficult financial situations.

It might seem tempting to just continue not making payments, but the consequences can be severe, including a hit to your credit score and exclusion from future aid and benefits.

However, President Joe Biden on Friday offered a plan for a 12-month grace period to help borrowers who initially struggle when payments restart. Exact details have yet to be released.

After that on-ramp, experts say delinquency and bankruptcy should be options of last resort. Deferment and forbearance — which pause payments, though interest may continue to accrue — are often better in the short term.

Once payments restart in earnest, borrowers who can’t or don’t pay risk delinquency and eventually default. That can badly hurt your credit rating and make you ineligible for additional aid and government benefits.

If you’re struggling to pay, advisers first encourage you to check if you qualify for an income-driven repayment plan, which determines your payments by looking at your expenses. You can see whether you qualify by visiting the Federal Student Aid website. If you’ve worked for a government agency or a non-profit organization, you could also be eligible for the Public Service Loan Forgiveness Program, which forgives student debt after 10 years.

Carolina Rodriguez, Director of the Education Debt Consumer Assistance Program at the Community Service Society of New York, emphasizes that anyone temporarily unemployed should be able to qualify for a $0 payment plan. And many others qualify based on income and family size.

“The repercussions of falling into delinquency can be pretty severe,” Rodriguez said. “The federal government can administratively intercept tax refunds and garnish wages. And it can affect Social Security, retirement, and disability benefits. Does it make financial sense at that point? Probably not.”

Rodriguez says her organization always advises against deferment or forbearance except once a borrower has exhausted all other options. In the long term, those financial choices offer little benefit, as some loans will continue to accrue interest while deferred.

Abby Shafroth, senior attorney and director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, said that, of the two, deferment is generally a better option.

That’s because interest generally does not accrue on Direct Subsidized Loans, the subsidized portion of Direct Consolidation Loans, Subsidized Federal Stafford Loans, the subsidized portion of FFEL Consolidation Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest.

“Forbearance allows you to postpone payments without it being held against you, but interest does accrue. So you’re going to see your balance increase every month.”

The U.S. Supreme Court has ruled that the Biden administration overstepped its authority in trying to cancel or reduce student loan debt, effectively killing the $400 billion plan, which would have canceled up to $20,000 in federal student loans for 43 million people. Of those, 20 million would have had their remaining student debt erased completely.

The sharply divided court held the Biden administration overstepped its authority in trying to cancel or reduce student loans for millions of Americans, saying the administration needs the endorsement of Congress before undertaking so costly a program. The 6-3 decision, with conservative justices in the majority, also rejected arguments that a bipartisan 2003 law dealing with student loans provided the authority Biden claimed.

Biden announced a 12-month grace period when payments restart. Biden said borrowers can and should make payments during the first 12 months after payments resume, but, if they don’t, they won’t be at risk of default and it won’t hurt their credit scores.

Separately, the administration plans to pursue student debt cancellation with a different legal justification than the one struck down by the Supreme Court. The White House hopes to provide relief instead by using the Higher Education Act, a broad federal law that governs the student loan program. Exactly who will be eligible and how much will be canceled will be decided through a federal rulemaking process. But that process can take months, or even longer, so this attempt at cancellation won’t come quickly.

Many questions still remain about the plans, and it’s not entirely clear yet how they will work.

What’s more, there’s no guarantee Biden’s new forgiveness plan could survive another legal challenge. The Higher Education Act has been used to cancel student debt, but never at this scale. Education lawyers for the Trump administration concluded in 2021 that the education secretary “does not have statutory authority to provide blanket or mass cancellation” under the act.

For most student loan borrowers, it’s still very difficult to have your loans discharged, or canceled, through bankruptcy. Borrowers must prove a very hard standard of financial circumstances, called “undue hardship.”

“That doesn’t mean people shouldn’t look into it,” Rodriguez said. “But they may not be successful at discharging their loans.”

For borrowers who show that level of financial strain, chances are they have other options, Rodriguez said.

She advises that borrowers make sure they are speaking to a bankruptcy attorney who understands student loan bankruptcy, which requires a different proceeding than other types of bankruptcy.

Shafroth, of the NCLC, says that new guidance on student loan bankruptcy has been coming out in recent years.

“Though it is difficult to get your loans discharged through the bankruptcy process, an increasing number of borrowers are eligible to get their loans discharged that way,” she said. “A lot of people write that off as: ‘There’s no way, it’s impossible.’ But it’s increasingly possible.”

When you fall behind on a loan by 270 days — roughly 9 months — the loan appears on your credit report as being in default.

“At that point, it’s not just behind, it’s in collections,” Shafroth said. “That’s when you become ineligible to take out new federal student aid. A lot of people go into default because they weren’t able to complete their degree the first time. This prevents them from going back to school.”

Once a loan is in default, it’s subject to the collection processes mentioned above. That means the government can garnish wages (without a court order) to go towards paying back the loan, intercept tax refunds, and seize portions of Social Security checks and other benefit payments.

Shafroth said that many borrowers may still be eligible to have loans canceled via a patchwork of programs outside of the Biden administration’s proposed debt relief program.

“If your school closed before you could complete your program, you’re eligible for relief. If your school lied to you or misrepresented the outcome of what your enrolling would be, you can file a borrower defense application, and request your loan be canceled on that basis,” she said. “If you have a disability, you can sometimes have your loans canceled on that basis.”

Shafroth encourages borrowers to look at the Student Aid website to see what their options might be before missing payments.

Under the Biden administration’s Fresh Start program, borrowers with federal student loans who were in default before the pause have a chance to become current.

Borrowers who were in default will not be subject to collection processes or have wages garnished through about August 2024, or roughly one year after the payment freeze ends. These borrowers have also been granted permission to apply for federal student loans again, to complete degrees. Lastly, these defaulted loans are now being reported to credit bureaus as current.

That said, borrowers must take action if they want to stay out of default after this year-long leniency period ends.

To eliminate your record of default, you should contact the Education Department’s Default Resolution Group online, by phone, or by mail, and ask the group to take the loans out of default via the Fresh Start policy. In four to six weeks, any record of default will be removed from your credit report, and the loans will be placed with a loan servicer. This will also give you access to income-driven repayment plans and Public Service Loan Forgiveness, if applicable.

The Fresh Start program also applies to borrowers who were delinquent prior to the payment pause. Those accounts will be considered current, and borrowers will have the option to enroll in income-driven repayment plans that can lower bills to as little as $0, or to apply for deferment, forbearance or bankruptcy.

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Education Writer Collin Binkley contributed from Washington.

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