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Richelle Brooks’ budget is already tight. She doesn’t know what she’ll do when federal student loan payments resume in the fall.
The single mother of two children has had to accept an increase in all expenses in recent years due to high inflation. “I go grocery shopping and spend $300 or $400 on groceries that will last two weeks in my house,” said Brooks, 35. Her mother recently moved in with her because being an office manager doesn’t make enough money to pay the rent in Los Angeles, where they live.
Although Brooks makes around $100,000 as a principal, her loan balance is nearly $240,000. She has already calculated what her new payment will be.
“Where’s the $600 more a month going to come from?” Brooks said.
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Millions of other people are probably asking a similar question.
The more than three-year hiatus in the disbursement of federal student loans should finally be completed within a few months. The Biden administration is preparing borrowers for payments to resume by September even as its loan relief program stalls as the Supreme Court debates its validity. The debt ceiling agreement passed by Congress also includes a provision that formally ends pandemic-era aid policies and makes it harder for the US Department of Education to extend them.
“The emergency period is over and we are preparing our borrowers for the reset,” Secretary of Education Miguel Cardona said at a Senate hearing last month.
The average borrower saved $15,000 as a result of the payment pause
Former President Donald Trump announced the suspension of federal student loan bills and accrual of interest for the first time in March 2020 as the coronavirus pandemic swept the United States, crippling the economy. The break has since been extended eight times.
According to an analysis by higher education expert Mark Kantrowitz, nearly all those eligible for the relief have taken advantage of it, with fewer than 1% of eligible borrowers continuing to make payments on their educational debt.
As a result of the policy, the average borrower likely saved about $15,000 on student loan payments, Kantrowitz said. The typical monthly bill is just under $350 per month.
“There will be chaos at first”
With no lending precedent for borrowers being given such a long grace period to pay their bills, there is little evidence of what will happen when payments resume.
However, Kantrowitz expects that most borrowers will adjust fairly quickly.
“There will be some chaos at first, but it should calm down within a few months,” he said.
However, Education Department Undersecretary James Kvaal warned earlier this year that arrears and default rates could skyrocket if the government fails to implement President Joe Biden’s plan to pay borrowers up to $20,000 in student debt to waive US dollars.
There will be some chaos at first, but that should settle down within a few months.
Mark Kantrowitz
university expert
Shorter deferrals have been offered to borrowers in previous natural disasters, and many defaulted when their payments resumed, Kvaal said in a court filing.
″[T]”The one-off student loan debt relief program should avoid that problem,” he added.
“Borrowers unwilling to resume payments”
House Speaker Kevin McCarthy welcomed the provision in the debt ceiling agreement that formally ends the suspension of the bills until September, saying the Biden administration “can [no] “Stop using Covid as an excuse to suspend student loan repayments.”
“It also requires borrowers to be responsible for paying off their student loans,” McCarthy wrote on Twitter.
But consumer advocates say the problems for student borrowers are far from over.
“Borrowers are unwilling to resume payments,” said Persis Yu, deputy general manager of the Student Borrower Protection Center. “Even if the risk from the virus has decreased, the financial consequences have not decreased.”
Before the public health crisis, when the US economy was experiencing one of its healthiest periods in history, problems with the federal student loan system still existed, and some experts compared it to the 2008 mortgage crisis
According to an estimate by Kantrowitz, only about half of borrowers were in the process of repaying in 2019. Around 25% – or more than 10 million people – were in default or delinquent, and the rest had requested temporary relief measures for troubled borrowers, including deferrals or forbearance.
“I think they may be in a worse position,” Yu said of those people. “That’s why President Biden’s debt relief program is so important.”
The Biden administration last year announced a new program that will give defaulting borrowers a chance to catch up. However, “the government has only just started to do public relations work under the program,” Yu said.
The Department of Education did not immediately respond to a request for comment.
Yu is also concerned about recent turnovers and layoffs at student loan providers, which have faced criticism and complaints from lawyers, regulators and borrowers long before Covid.
During the suspension of payments, three companies administering the loans — Navient, the Pennsylvania Higher Education Assistance Agency (aka FedLoan) and Granite State — said they were severing ties with the government. As a result, around 16 million borrowers will be dealing with another company until payments resume or not long after.
“It’s important for people to understand that the student loan system is not ready to return to repayment,” Yu said. “We rely on brand new service providers and expect them to help millions of borrowers at once through a Byzantine system.”
Some borrowers face difficult financial decisions
Half of Paul Berlet’s monthly income goes towards his rent.
The sixth-grade English teacher makes just under $50,000 a year and pays $1,200 a month for his one-bedroom apartment in Wilmington, Delaware.
In order to be able to pay his student loan in September, Berlet plans to buy less groceries. While this will technically allow him to rake in the extra $250 a month, he doesn’t think he should be making those decisions.
“There’s no reason anyone should take out loans to become a teacher,” said 23-year-old Berlet. “But in order to serve my own community, I had to get into debt.”
He expects to be able to return to the diet he ate when he was a broke student by the fall.
“Now when I go shopping, I can buy fresh ingredients, vegetables and a piece of salmon if I want,” he said. “But this will go away and I will come back [instant rice] and beans.”
Brooks also doesn’t think she should owe hundreds of thousands of dollars for her education.
Her parents didn’t go to college, she said. Her mother was a waitress most of her life; Her father wasn’t there. To finance her studies, she resorted to government loans.
I’ll go back to rice and beans.
Paul Berlets
Borrower of a student loan
“By completing an education, I worked to better myself and escape poverty,” Brooks said.
Your college debt has made this mission difficult. And she fears the consequences will continue.
Their daughter, Mariah, will be starting college herself in three years. During the student loan pause, Brooks was able to save $150 a month for Mariah’s education.
But from September she will no longer be able to do that.
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