As student loan collections restart, millions still aren't paying


Just over half of the millions of borrowers who received their first federal student loan bills in years in October, after the pandemic freeze ended, have paid the bills, the Department of Education said Friday.

Forty-three million borrowers collectively owe the government $1.6 trillion in student loan debt. In March 2020, as the coronavirus pandemic shook the country's economy, President Donald J. Trump's administration imposed a collection freeze as an emergency relief measure. The moratorium was extended nine times by Congress, Trump and his successor, President Biden, until this fall, when it finally ended.

Officials had long warned that getting borrowers used to paying again after such a long pause would be a difficult process, especially after the Supreme Court in June voided Biden's $400 billion plan forgive up to $20,000 in debt per borrower. Tens of millions of people would have benefited of that relief.

Instead, 22 million people had to make their first payment in years in October, when the government restarted its collection machinery. Sixty percent of them paid the bill by mid-November, according to James Kvaal, deputy secretary of the Department of Education. (Borrowers who are still in school or who recently dropped out do not yet have to pay their debts. Additionally, some borrowers' repayment terms have been extended due to errors in loan servicing.)

That leaves nearly nine million borrowers who had payments due but have not yet made them. Many people “will need more time,” Kvaal said Friday in a written statement. “Some are confused or overwhelmed about their options.”

Borrowers and consumer advocates say the reasons so many people don't pay range from administrative delays (usually caused by delays in the four loan servicers hired by the government to collect payments and guide borrowers through their payment options) until inability to pay. the invoice.

Spencer Dixon, 32, is an expert on student loans: He has a master's degree in higher education policy from George Washington University and works as an advisor to the Student Debt Crisis Center, a nonprofit advocacy group. But even he is baffled by the current state of his loans.

In early 2020, Dixon completed her certification for an income-based repayment plan. At the time, he was unemployed and had no income, qualifying him for a $0 monthly payment. Immediately afterward, the pandemic moratorium went into effect, suspending his payments for more than three years.

Dixon assumed that when billing resumed in October, he would pick up where he left off: with a $0 payment. So he was surprised when he logged on to the website of his loan servicer, Nelnet, and it said he was in forbearance.

This is potentially a problem for him, because time spent in tolerance usually does not count toward Government loan elimination programs., including public service loan forgiveness, which Mr. Dixon is seeking. He has made multiple calls to Nelnet (the government's largest loan servicer, with more than 14 million accounts) to try to untangle his loans. One lasted four hours, including long waiting periods. Nelnet declined to comment and directed questions to the Department of Education.

Kvaal acknowledged that restarting collections after a years-long hiatus is “an unprecedented challenge for both borrowers and the Department of Education.”

Hannah Luna, 35, who works for an educational nonprofit in New York City, also had her return to pay postponed due to an administrative delay at Nelnet. Ms. Luna applied for Biden's new income-based repayment plan in September. Save on a valuable educationor SAVE.

More than five million borrowers have signed up for the scheme, but the overflow caused months-long processing delays for many. Ms. Luna just received a notice with her new monthly payment amount ($316) and her first due date, December 20.

She plans to pay, but it will be overkill. Rent, health care and other bills consume more than half of her salary. During the pandemic wait time, she was able to pay off her credit cards and create a small savings account.

“It was the first time I thought, oh, I paid all my bills and I still have money to pay for groceries, and I have this little amount of money on the side; This is amazing,” she said. Resumption of loan payments will eliminate that cushion.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, the servicers' trade group, said the repayment rate so far is “pretty much what I would have expected.”

He added: “The real test is: where are we in January? “Then I think we will have an idea of ​​whether payment rates are trending lower than before the pandemic.”

Some people said they just can't make the financial calculations work. Josh Visnaw, 37, is a project director for a nonprofit voter registration initiative at the Harvard Kennedy School in Boston. Earning bachelor's and master's degrees left him more than $70,000 in debt.

Income-driven repayment plans, like SAVE, limit borrowers' payments to 10 percent of their discretionary income, but the government's formula for calculating that doesn't take into account housing costs and other expenses, such as private loan debts or child support. Mr. Visnaw's monthly outlays include $2,500 for rent, a $320 private student loan bill, and medications and doctor appointments to manage his type 1 diabetes.

Even with the SAVE plan, which he enrolled in, Mr. Visnaw's total federal and private student loan payments would be nearly $1,000 a month. He requested and was granted a hardship forbearance, which postponed his payment date until January. This month he requested to extend the indulgence.

He hopes to keep his payments on pause until July, when an additional element of the SAVE plan takes effect that will reduce college loan payments to a maximum of 5 percent of income. Monthly loan bills for millions of borrowers, including Mr. Visnaw, will decrease at that time.

“It's not an option for me to even consider adding an extra $600 or $700 a month to my expenses,” he said. “It's not that 'that would be difficult'; it's not just that it's not a possibility.”

Borrowers who simply don't or can't pay won't face the most draconian consequences until at least the end of 2024, thanks to a policy the Biden administration calls the “payment on-ramp.” Until next September, borrowers who miss payments will not have their delinquencies reported to credit agencies and will not have their wages or tax refunds garnished, a common collection tactic used with those who default on their debts.

The policy is intended to protect “borrowers who still face the challenge of making room for student loans in their monthly budgets,” Kvaal said.

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