Student loan payments resume with new providers, new plans
Borrowers will resume student loan payments this month after a three-year freeze that started in March 2020. Sudden job loss from an economy shuttered by the pandemic put the loan payments on pause, and the restart was extended several times. Student loans did not accrue interest until Sept. 1 this year.
Over 1.1 million Virginia residents carry a cumulative $43.8 billion in student loan debt, according to the Department of Education. People between the ages 35-49 carry the most student loan debt in Virginia, for a collective $16.6 billion owed.
Approximately 45 million Americans, or around 17.4% of the U.S. adult population, have student loan debt.
Scott Kemp is the student loan ombudsman for the State Council of Higher Education for Virginia. “People have gotten out of the habit of making loan payments,” Kemp said.
Many borrowers have a new loan servicer and might be unfamiliar with the new websites. “Back in 2019, we had seven loan servicers; we’re now down to five,” Kemp said. “So I’d say the vast majority of loan borrowers have either a new loan servicer or they have a loan servicer who’s changed their name.”
Borrowers have options if they are struggling to pay back their loans. If a borrower works for a qualified employer, they can apply to the Public Service Loan Forgiveness program. After 120 months or 10 years with such an employer, any outstanding debt is forgiven. The borrower has to make regular payments and provide annual employer verification.
There are now also four income-based payment options with the SAVE plan being the cheapest option, according to Kemp. The “Saving on a Valuable Education” plan is based on income and takes a smaller portion of the borrower’s discretionary income.
Federal Student Aid also has a temporary “on-ramp transition” period, where borrowers have up to 12 months to resume payments without penalties such as negative credit reporting, or defaulting to a collection agency.
It may be appealing as borrowers adjust, but the option comes with costly drawbacks, according to Kemp. “You may not be making a payment for 12 months, but unlike before, interest is going to accrue every month,” Kemp said. “If that loan was $20,000 in August, if you wait a year, it’s probably going to be $21,000.”
Many of the new options were established through a student loan reform led by President Joe Biden’s administration, although Biden’s signature $10,000 loan forgiveness effort was overturned by the U.S. Supreme Court.
Frustrated by mismanagement
Christina Winton has two degrees and currently works for the state of Arizona. As a public servant, she would qualify for PSLF. Winton said she has made more than the qualifying amount of 120 payments. Winton shared her account record that showed just under $30,000 of remaining student loan debt, from a master’s of business administration from the University of Phoenix. She has filed paperwork for PSLF and for “borrower’s defense,” a discharge option available if a school engaged in misconduct.
Winton is frustrated by “mismanagement” from loan servicers and the Department of Education. She cited that her provided signatures were overlooked, her payment history lost and her applications stuck in a holding pattern. She says she feels “trapped in debt” and is unable to make her student loan payment because she is already struggling with other important bills, Winton said. She feels forced between feeding her family, keeping the water running and a student loan payment plan that has been a headache. Winton has been working with the advocacy organization Student Loan Justice to help restore borrower and bankruptcy rights to student loans.
The Department of Justice issued guidance last November that could make bankruptcy discharge of student loans more likely, if certain stipulations of hardship are met. The DOJ guidance was to enhance “consistency and equity” of student loan bankruptcy claims in accordance with existing case law.
Current borrowers should keep a good record of their payment history and call those who can make a difference, according to Winton. “Keep all your documentation and then call your senators, House representatives, contact the president, contact the first lady, contact your local constituent, your local attorney generals’ offices,” Winton said.
Winton also advised students to not borrow any more money and called for the federal government to cancel all student loans. Many citizens have a different opinion on that, of course – especially those who opted for a trade career / skill and received zero Government assistance.
“I would love to own a home”
Daniel Sherwood shared his account record that showed over $70,000 in student loan debt, which he fears will keep him from home ownership. He currently rents in Seattle but “would love to own a home.” Sherwood stated that he can’t, because of “student loans that will die with me.”
Congress should pass bills to remove interest and require the borrower’s consent before the loans are sold to another company, according to Sherwood. “I wish they would’ve told me that they could sell my loans off to a different student loan company, and thus changing the terms and interest rates on you without getting your consent,” Sherwood stated in an email. “I wish I fully understood the contract that I was signing at the age of 18.”
Biden recently announced another plan to erase $9 billion in student loan debt. An estimated 3.6 million borrowers will have a cumulative total of $127 billion forgiven.
Higher education finance reform
Some organizations want higher education to be publicly financed altogether. Liz King is the senior program director for education equity at The Leadership Conference on Civil and Human Rights, a legislative advocacy group founded in 1950.
Debt-financed education holds students back from pursuit of their goals, King said. They might not pursue an art, law, medical or engineering degree based on the final price tag. “It limits our growth and development as a society if individual students do not have the opportunity to pursue their passions and share their gifts and talents with the rest of us,” King said.
All student loan debt should be forgiven and the financing of higher education should be reformed, according to King. “One of the most important messages to convey is how important it is to vote and be civically engaged and to ensure that your voice is heard,” King said.
King also encouraged borrowers to contact policy makers and advocacy groups, and share their stories about the impact of their debt. “Policymakers need to hear the real stories of what this really means, who’s really affected and the way in which we need a broader, longer term, bigger picture, structural reform to move away from debt-financed higher education,” King said.
By Vali Jamal / Capital News Service