‘I am very nervous’: The return to repayment will cost borrowers $18 billion each month, according to estimates.
She doesn’t know how much her student-loan bill will be when the years-long pandemic-era freeze on payments ends. Eminger’s loans were transferred during the pandemic to a new servicer, but she’s struggled to communicate with the organization, which could help her learn her monthly payment amount. She’s also rushing to take steps that could provide her access to a loan-forgiveness program for public servants.
To advocates who pushed officials to delay restarting payments in the past, this moment in many ways looks similar to the months before the freeze was scheduled to end eight other times. A challenging economy means borrowers’ budgets are still tight and promised fixes to the student-loan system that could help ensure a smooth transition to repayment and make borrowers’ bills more manageable still haven’t materialized.
“The rules have been changing so much,” she said. “Before the pandemic I felt like I very much understood what I was required to do. I always felt very on top of it. Now it just feels like a completely moving target.” That uncertainty could exacerbate the stress that student debt already places on borrowers, according to Daniel A. Collier, an assistant professor of higher education at the University of Memphis, who is studying the impact of student debt on mental health. What he’s found is that people who are the most uncertain about what’s going on with their student loan have the highest rates of psychological distress and suicidal ideation.
The decision to tie the resumption of payments to the court’s decision “added an element of unpredictability,” said Persis Yu, managing counsel and deputy executive director at the Student Borrower Protection Center, an advocacy group. Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group, said that 60 days should be enough time for student-loan servicers to implement the restart to payment. In order to accomplish that, they’ll need to be able to communicate with borrowers in the coming weeks about the end of the payment pause and be allowed to offer flexibilities like forbearance and allowing borrowers to verbally recertify their income for payment plans.
Still, the uncertainty surrounding exactly when payments will start could create an obstacle to a seamless return to repayment, Buchanan said. “What is the right level of resources? How many staff should you have? It’s not a definable thing,” Buchanan said. “What I can say is having fewer than we had before does not make it better.”
“At this inflection point where you need the best servicing possible, we don’t have it,” she said. “It seems irresponsible to turn on the payment system into a broken servicing system and into a broken system overall.” Still, there are more borrowers eligible to have their debt canceled under these programs who haven’t received relief, Yu said.
The proposed plan, which the Department spokesperson described as “the most affordable student loan plan in history,” builds on an existing income-driven repayment plan called REPAYE. Eligible borrowers who enroll in REPAYE now will have their monthly payments automatically updated as the terms of the new plan are “finalized and implemented, starting later this year,” the spokesperson wrote.For many borrowers, the financial burden of resuming student-loan payments will be significant.
— Thomas Simons, senior economist, Jefferies “If you look at what happened in the economy in 2013 after those tax increases were announced, the first half of the year spending decelerated quite significantly,” he said. “It really didn’t recover until the latter part of the year.”
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