Time is running out for student loan repayments
The government suspended federal student loan payments during the pandemic – but in September borrowers are expected to start paying again. They might not be ready, as well as the infrastructure to support repayments.
Why is this important: Americans owe $ 1.6 trillion in student loans. The respite has brought tremendous relief, to the tune of approximately $ 14 billion per quarter to more than 40 million borrowers.
- The crushing of student debt was the âcrisis before the crisisâ. Highly indebted graduates find it difficult to buy a home or even build a financial safety net.
The student loan problem is not just a student loan problem. âSomeone who is struggling to repay their student loans is probably not only struggling there, âsays Sarah Sattelmeyer, project director in the higher education program at think tank New America.
Threat level: According to Mark Kantrowitz, author of Mark Kantrowitz, the lion’s share of delinquent borrowers has historically been made up of students who have taken on debt but did not actually complete their education. How to appeal for more college financial aid.
- And the pandemic has prompted many students to take a year off rather than paying for distance education. Some of these students might not return, but they will still owe money on the debt they have already incurred.
Inventory: The federal student loan hiatus began in March 2020 under the CARES Act. It has already been extended three times and lawmakers have urged President Biden to extend it again.
Yes, but: Part of the problem is the uncertainty of when the freeze will actually end.
- Loan service companies need time to reorganize their staff and ensure up-to-date information on borrower addresses and bank account information.
- And borrowers must receive six notifications of their new payment due date, before payments resume, under the CARES Act.
- And the borrowers themselves need clarity. A Pew survey released late last year showed a high degree of confusion among student loan borrowers as to how the payment break was affecting them.
Catch up quickly: When the break ends, borrowers can temporarily defer their payments by proving economic hardship or unemployment. They can also apply for an income-based repayment, which is a plan that can reduce monthly payments by tying them to a borrower’s income.
- But these processes can be expensive, and often the people who need them most aren’t able to carry them out, says Sattelmeyer.
The bottom line: âFor some people, the pandemic has really caused insecurity, but for many, the pandemic has exacerbated and drawn the curtain on financial insecurity that has endured for decades,â she said.