We're Baacck! Student loan payments start again next month. From the WSJ:
Student Loans Are Emerging From Deep Freeze, and Borrowers Are Confused
Interest on federal loans restarts on Friday and the first payments are due in October
Student-loan borrowers are finding out that restarting a $1.6 trillion federal program is much more confusing than switching it off.
With pandemic relief ending, borrowers will start owing interest as of Friday. They are learning of new payment schedules, often via email, from servicers they might have never heard of—and could be reluctant to pay. That is because about four-in-10 borrowers’ loans transferred to a new servicer during the pause that began in March 2020, according to government data.
Millions more have graduated or otherwise left school during the pause and have never been required to make a payment until now. And many must consider a flurry of enticing, but novel, Biden administration changes to repayment plans and debt-forgiveness programs.
The first payments are due as soon as Oct. 1.
Geri Critchley, a 75-year-old former nonprofit employee, is among those attempting to navigate the system. She paid graduate-school loans for more than 20 years. She has $14,000 left, but no clarification as to what she will owe each month and how to pay.
After three years of no payments, she called her loan servicer and the Education Department to ask about forgiveness options, payment deadlines and amounts. But getting through to a human at each place took some work. Critchley encountered what many borrowers fear: long hold times, constant redirections and dropped calls. When she finally got through to her loan servicer, the voice on the other end of the line suggested she call back in January when call volume would be lower—three months after repayment is set to start.
“The Department of Education person said to me, ‘I’ve been working in this field for many years, and I admit it’s the most complicated process I’ve ever been involved in,’ ” Critchley said.
Borrowers such as Critchley must work with their servicers and government tools to determine the most beneficial repayment strategy. That includes an income-driven repayment option rolled out by the administration last week that could significantly lower their monthly payments and put them on a path to debt forgiveness after 20 years of compliance.
They must also decide whether to make payments at all, or use a 12-month “on-ramp,” during which interest accrues but loans aren’t marked as delinquent or reported to credit-rating companies.
The department has sent out early payment reminders via email this summer and is working with servicers to increase individual communications with borrowers, a spokesperson said. After Oct. 1, they will send notices to borrowers who didn’t make their first payment offering additional resources.
Loan servicers are adding staff to handle the expected deluge of calls this fall. Job listings for Edfinancial Services, a company that handles millions of federal accounts, say it is “urgently hiring” customer-service representatives in Tennessee, Alabama and Texas. The company referred a request for comment to the Education Department.
After three years without payments, many federal student-loan borrowers might feel overwhelmed as they plan for resumption. Below, a guide to how to prepare:
Know your dates. Student-loan payments officially resume in October, but interest will pick up again in September.
* Contact your servicer sooner rather than later. Callers can expect long wait times. Should you have a question that requires you get in touch with your servicer, make sure to do so before the payment deadline—and be ready for hold music. The Education Department can help identify a borrower’s servicer.
* Don’t forget to check if you qualify for another repayment plan. The Biden administration announced changes to income-driven repayment plans that could potentially lower your monthly payments and speed up your repayment process.
* The handful of companies with department contracts say they are hamstrung by flat funding from Congress for the Federal Student Aid office, despite the administration requesting a $600 million increase.
“When the system is undergoing a major transformation, there’s going to be some backlogs,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group.
Beyond answering questions about the payment restart, servicers also advise borrowers about complex financial decisions such as whether to consolidate loans or enroll in the income-driven program, called Saving on a Valuable Education, or SAVE.
The administration enlisted advocacy groups to promote the program. President Biden filmed a video promoting the launch of the program’s application last week.
Republicans criticized the new program as a workaround after the president’s mass debt-cancellation plan was struck down by the Supreme Court this summer. That would have forgiven as much as $20,000 for qualified borrowers. Most Democrats support the administration’s efforts, but some are worried about borrowers’ readiness to pay without debt forgiveness.
The Biden administration agreed to not further extend the payment pause as part of the deal with House Speaker Kevin McCarthy (R., Calif.) to suspend the debt ceiling this spring, just weeks before the Supreme Court decision.
“They could have waited—this particular group needs relief,” said Florida Rep. Frederica Wilson. She and more than 80 other Democratic lawmakers, including Senate Majority Leader Chuck Schumer, wrote to Biden last week about their repayment concerns and urged him to try again on mass cancellation using other legal authorities. Still, she is optimistic about the SAVE program’s success in the long term.
A complication for the administration is that some features of the plan, such as cutting monthly payments from 10% to 5% of discretionary income, won’t be available until next summer, after the regulatory process concludes.
To ease the confusion, more borrowers are seeking outside financial counseling to manage their student-loan decisions.
“A lot of folks just have no idea where to start,” said Meagan McGuire, a consultant at Student Loan Planner, a financial-advisory firm. “With the website and servicers not being super helpful right now, that’s leading to more confusion—newer borrowers are just throwing their hands up.”
Davie Morales-Miranda, who works while attending graduate school in Nashville, Tenn., is concerned that interest will again begin accruing on his $50,000 of federal student loans in September, even though he won’t be mandated to start paying because he is in school.
“I know the power of interest,” the 29-year-old said. “It’s been three years. We forget what that was like.”
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