What Happens When Student Loan Payments Start Again?
Since March 2020, when the COVID-19 pandemic began, tens of millions of people have not needed to repay their federal student loans thanks to an interest-free break that the Department of Education (ED) has taken issued. But after January 31, 2022, this nearly two-year freeze will end. And after?
“This is a constant effort,” said Sarah Sattelmeyer, project director for education, opportunities and mobility in the New America Higher Education Initiative, a research and nonprofit advocacy. “We are trying to get tens of millions of people back for reimbursement. Something like this has never happened before.
The challenges of the restart, according to experts and advocates, lie in educating borrowers, especially those who were at risk of defaulting or defaulting before the pandemic. Loan managers will also likely need to recruit staff to handle the expected deluge of borrower calls in February.
“I see three major challenges here,” said Dr Jenna Sablan, senior policy analyst at the State Higher Education Executive Officers Association (SHEEO), a nonprofit organization that studies higher education policy. “The first is psychological on the borrower’s side. They haven’t had to worry about this for about two years by the time this starts up again. But they probably had to worry about other things like their health or job changes. So how do you come to terms mentally and emotionally with restarting a payout that’s weighing on you? “
For Sablan, this joins the second big challenge: a financier for the borrowers. Student loan repayments will have to be put back into people’s monthly budgets. But some people will likely be in drastically different financial situations than before March 2020.
This summer, the Pew Research Center, a non-partisan think tank, conducted surveys that found that about 67% of borrowers said it would be difficult to make a payment on their student loans next month. Regan Fitzgerald, head of the Pew Charitable Trust’s Student Loan Success Project, said such a high number surprised her given the news of the economy recovering from the early days of the pandemic.
“But while the economy is improving for some, many are still waiting for this increase,” she said. “This finding shows that student loans are a fundamental problem in the kitchen. There has been so much economic strain on families in this pandemic that once you have a long period of time without that burden, the thought of having this bill once again on your to-pay list every day. month is important. “
The return of that burden is of particular concern to Fitzgerald for borrowers who were at risk of defaulting or defaulting before the pandemic. Their finances may be more precarious today. Communities of color are many of these particularly vulnerable borrowers, facing worsening social and economic inequalities.
Another concern for New America’s Sattelmeyer is the timing of the reboot, which coincides with the start of tax season. She noted that it is not yet clear what might happen to borrowers who are in default around the same time as when their last social safety net benefits are expected to take effect.
“If the government’s broad collection powers are also reactivated, it is possible that defaulting borrowers will see their safety net benefits suspended when these two benefits have been extended and when they need them most,” Sattelmeyer said. .
She spoke about the growth of these safety nets during the pandemic.
“What’s the plan for those falling through the cracks? Because even [if] the restart is going logistically perfectly, there will be people who have moved or who have been negatively affected by the pandemic and will be difficult to reach or support, ”said Sattelmeyer. “Ideally, we would have known this information already. Ideally, there would be more than one public plan in place.
For Sablan at SHEEO, the logistics mentioned by Sattelmeyer are the third and last major issue of this restart, alongside the financial and psychological obstacles for borrowers. Procedural matters are primarily the responsibility of the emergency department and their work with loan officers. Problems include how loan services will recertify borrower income or help people enroll in income-driven repayment plans.
Many loan officers recognize that they will need to staff themselves while waiting for more direction from the emergency department.
“We are concerned that when all 30 million people call us on the same day, we will have a logistics capacity program,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a nonprofit trade association that focuses on student loan service issues. . “We’re not designed to handle that kind of volume. The key thing I have shared with people is making sure I contact your repairman ASAP. “
But Buchanan said maintenance services are increasing capacity, although the hiring market is tough and the schedule is tight.
“We expect core resources from the ministry like what they want to pay for,” Buchanan said. “We need to have the financial resources to decide what to pay for our staff that we need to hire. It’s also about the kind of flexibility that we can get around paperwork to make things faster for people. Like certifying their income quickly. But I hope we will finish these discussions in the next month. “
Meanwhile, Buchanan said he is advising people to ask their agents to sign up for the income-based repayment plans Sattelmeyer mentioned. Such plans can help make student loan payments more affordable, which they believe could be essential as many adjust to the reboot.
Fitzgerald noted that it is vital for ED to contact ordinary borrowers before February.
“We believe the first step is to communicate intensely with borrowers, especially those who were most at risk for delinquency and default before the pandemic,” Fitzgerald said. “If communications aren’t done well, borrowers can ignore messages, thinking they are spam or repetitive, and miss deadlines.
Many borrowers are also on the verge of receiving a flood of information. Over the past week, the announcement of a temporary overhaul of the civil service loan forgiveness program as well as steps taken by some loan managers to stop managing federal student loans mean big changes are underway. Classes. Lifting the break is yet another thing that some people have to follow.
“There will be a lot of communications for borrowers to absorb, which can present a problem for the department,” Fitzgerald said. “Messages need to be as clear and effective as possible to help borrowers who have been left out for a long time get them back. “
Fitzgerald said ED can take other steps in its planning already underway.
“We believe the ministry needs to streamline the income-based repayment process, make it easier for people to register, as well as give a grace period to borrowers who might fall a bit behind once it starts up again,” said Fitzgerald.
Thinking on a larger scale, Sablan added that she wanted to learn more about the experiences of people without the burden of student debt in their day-to-day lives during the freeze.
“We may need more research on the impact of this break on borrowers,” she said. “What other things were they spending this money on?” Did they pay off other debts, save, invest in basic needs? And how do these expenses differ from one demographic group to another? “
In the same Pew polls earlier this year, researchers found that about 59% of borrowers said the money they would have spent on student loan repayments was spent on key expenses such as a mortgage or rent.
For Sablan, more studies on the break could change the national conversation around student debt. Meanwhile, the possible fallout from the reboot is uncertain for many.
“At the moment, I have more questions than answers,” Sattelmeyer said. “How do we help borrowers access everything they’re eligible for and how do we make sure we’re borrower-centric? We’re kind of in a wait-and-see mode.
Rebecca Kelliher can be reached at [email protected]