Ruwa Romman spent three days trying to reach her federal student loan servicer to get answers about her graduate school debt.
She eventually got someone who could help, but the delay was just one of the difficulties that the 30-year-old Democratic state representative from Duluth has encountered or heard about from her constituents as they gear up for the return of monthly federal loan payments after a pause of three-plus years during the COVID-19 pandemic.
There was the updated paperwork she needed to complete and the issue of an online Federal Student Aid calculator that told her different information depending on the day she checked. She had to decide which income-based repayment plan made the most sense and finally selected an option that starts with a $392 monthly payment that will be paid off in 2043, according to the schedule. When she checked her balance again Wednesday, it mysteriously showed she owed tens of thousands of dollars more than the last time she looked. That would mean yet another phone call.
“I’m confused, and I consider myself pretty savvy,” said Romman, who has degrees from Oglethorpe and Georgetown universities.
It’s not just the logistical struggles of the payments resuming that worries her. She’s also concerned about how borrowers will squeeze another payment into their monthly budgets. Many say they’ll have trouble paying the bill.
More than 28 million federal student loan borrowers are scheduled to restart payments or begin making them for the first time in October. Many low-to-middle-income borrowers had clung to the hope that President Joe Biden’s forgiveness plan would wipe out all or much of their debt, until the U.S. Supreme Court in late June struck down that $400 billion relief proposal.
About 15% of Georgians, or 1.6 million people, have federal student loans, though it’s not clear precisely how many will enter repayment. They owe, on average, more than $41,000 in student debt, the third-highest in the nation, behind only Washington, D.C., and Maryland.
For half of those resuming payments, their monthly bill will be $200 or more, according to a July analysis by the credit reporting agency TransUnion.
As the October deadline drew near, some borrowers reported troubles, from confusing information on websites to waiting on long holds while calling loan servicers with questions. And with less than a week before payments resume, White House press secretary Karine Jean-Pierre warned of another complicating wrinkle. A potential government shutdown “could substantially disrupt the return to repayment effort” if it were to last more than a few weeks, she said.
During a Tuesday visit to Morehouse College, U.S. Secretary of Education Miguel Cardona touted a new income-based repayment plan to lower monthly costs for eligible borrowers and a 12-month grace period that allows people who are struggling to skip payments without being sent to a collection agency. He said he understands borrowers are tired and need support.
“We hear you, and we’re going to work to make the process as simple as possible,” he told The Atlanta Journal-Constitution. “And we’re going to continue to fight to make sure that we are providing debt relief and a return to repayment that’s respectful of the traumatic experiences they’ve had in the past.”
More students may default
The payment restart will add to economic headwinds such as inflation, rising housing costs and other pocketbook pinchers like the cost to commute as remote workers report back to offices, said Phil Vinson, an assistant professor of economics at Georgia Gwinnett College.
Vinson thinks the return of monthly student loan payments might soften the housing market a bit if people can’t qualify for mortgages. And spending on some goods and services could drop modestly. For student loan borrowers, especially those who didn’t build up their savings the last few years, “it’s not a small thing at all,” he said.
Credit: GGC PR COMMUNICATIONS ROD REILLY
Credit: GGC PR COMMUNICATIONS ROD REILLY
“For many households, a $300-$500 monthly payment is not something they can easily absorb, so that is going to potentially lead to a higher delinquency rate in a variety of different areas,” Vinson said.
But, he said, it shouldn’t be enough to tip the nation into a recession: “The U.S. economy is measured in trillions of dollars; I wouldn’t make any prediction that it is some cataclysmic event.”
The Consumer Financial Protection Bureau cautioned that many borrowers have fallen behind on payments for other types of debt and are at risk of delinquency on their student loans. The bureau noted “this may only worsen as student loan payments resume.”
Half of borrowers expected to resume student loan payments have scheduled monthly payments for other kinds of non-mortgage debt that have grown by at least 10% since March 2020, when student loan payments were first paused, the bureau reported. Credit card and auto loan balances have risen, and higher interest rates will lead to bigger monthly payments.
The bureau warned that borrowers who left college during the pandemic and are about to start making student loan payments for the first time may find the transition difficult, particularly if they have since taken on other debt.
Biden’s plan to help borrowers
Borrowers have some help. The Biden administration is touting a new income-driven repayment plan as a way to cut monthly costs. Under the SAVE Plan, a single borrower who earns $32,800 or less (or less than $67,500 for a family of four) will pay $0 a month. Those earning more could save an estimated $1,000 a year or more compared to other payment plans based on income, the administration says.
More than 178,000 Georgians have enrolled in the SAVE Plan. It could assist borrowers who live paycheck to paycheck, said Jaylon Herbin, director of federal campaigns for the Center for Responsible Lending, a nonprofit that advocates for student debt forgiveness.
Enrolling in the SAVE Plan, along with a program that provides loan forgiveness to government and nonprofit workers, could drop Albany resident Andre Joseph’s payment from several hundred dollars a month to the “not terrible” amount of $65-$85, which won’t break his budget. He said he filled out user-friendly paperwork a while ago and was still waiting for confirmation about both programs.
“Until I get something like that, I’m not paying anything. I need complete understanding of what exactly I’m doing,” said Joseph.
The 32-year-old father owes roughly $110,000 in undergraduate and graduate school loans. He earned his master’s degree in 2017 and works for Albany State University as a coordinator of new student programs. He said student loans have factored into financial decisions, such as when he may eventually buy a house.
A 12-month “on-ramp” will give borrowers time to adjust to payments resuming. The U.S. Department of Education said borrowers who miss payments during that period won’t be reported to credit reporting agencies or have their loans sent for collection. Those who skip payments could, however, see their credit scores drop and still will be charged interest.
Daniel Collier, an assistant professor at the University of Memphis who researches student loans, said he’s spoken to a number of borrowers who have pushed off making decisions or contacting their servicer because the task is mentally taxing.
Those who graduated recently and have yet to make any payments “have no functional understanding of what this is,” he said. Some have planned their post-college lives around not having a student loan bill. He expects spending on things like eating out to decrease and for some to draw down their savings at a faster rate.
Credit: PAUL OMARA
Credit: PAUL OMARA
Paul O’Mara, 70, of Rome, Georgia, took out a Parent PLUS loan to help his daughter, who graduated from college in 2012 and has been paying off her own student loans.
Days ago, he logged into his online account and saw a loan payment due in late October for just over $700. But elsewhere, on a monthly statement, the amount listed was several hundred dollars less.
O’Mara, who receives Social Security and works as a photographer, said he doesn’t know which of the two numbers is right or if he qualifies for a lower, income-based plan.
“Everything is moving so fast that nobody can keep up,” he said.
After all this time, he’s decided to just be patient.
“I choose not to really get worried about it until the due date,” he said.
Tips for borrowers
Experts say borrowers should make sure they know who is serving their federal student loan, as many loans have been transferred in recent years. That means a different company may be handling the billing and answering questions.
There’s a 12-month “on ramp” to help borrowers transition to payments, but those who miss a payment should be aware that they’ll still be charged interest, causing balances to grow. Interest on federal student loans was suspended during the payment pause, but started to accrue again in September.
Borrowers should beware of scammers. The National Association of Student Financial Aid Administrators warns borrowers to never pay an outside entity for student loan help because resources are available at no charge from loan servicers and the U.S. Department of Education.
Borrowers should avoid sharing personal information, such as a password, over the phone unless they made the contact.
Fraudsters will try to create a false sense of urgency to trick people into giving them information, but the association said valid student loan relief programs don’t have pressing deadlines. Instead, participation in those programs is based on other eligibility requirements.
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