Beth Romaker and her boyfriend Spencer Crawford last January joined the 25 percent of US households that make a budget. They plan to buy a bigger house, get married, and possibly start a family. Problem was they didn’t include student-loan repayment in their budget. Now they’re worried they won’t be able to afford a house. “This is…quite life-altering,” she was reported saying in a USA Today article on June 19. The two owe a combined $42,000 in student loan debt.
Ian Rhodewalt and his wife, Courtney, used the student loan payment moratorium to buy a new refrigerator and oven and a new car after the old one died. Ian “hasn’t done the math yet,” but says the loan payments will probably be tough.
“It was a much-needed reprieve,” Rhodewell was reported as saying in the June 19 USA Today article. Student-loan repayments begin again in September ending that reprieve. Apparently, it comes as a complete surprise to many people who owe on student loans. But surprise or not, they’ll have to start paying again or start paying on a just-obtained loan.
Three issues can affect repayments. First, how the repayments might affect the economy as they eat into the purchasing power of borrowers. Second, how many borrowers won’t know where to send their payments. And third, how those borrowers might be able to get their payments reduced.
Forty-three million student loans, including the 20 million whose loans the president wanted to forgive, amounting to $1.6 trillion in debt await payment. Some 29 percent of borrowers are confident they can repay their loans as opposed to about one third, 34 percent, who say they won’t be able to, reports Investopedia. That’s far from a personal problem because it will mean other debts won’t get paid, credit histories will suffer, and bankruptcies will ensue. The Consumer Finance Protection Board (CFPB) reports that one in five student-loan borrowers, about 8.6 million people, have “risk factors.” Of course, not all of them will fall into debt purgatory, but some will. That will mean car payments won’t be made, credit cards won’t get paid, rents won’t get paid or house payments made, and their abilities to get more credit will suffer as FICO score plummet.
The makings of a problem for the economy exist already. About 8 percent of borrowers already aren’t able to keep up with their credit card payments, car loans, and other debts. And even those people who will be able to afford repaying may be expected to cut back on other expenses, such as entertainment, travel, and eating out.
The effects remain to be seen. It could be that Congress will do something to help alleviate the burden, or the president will sign an executive order delaying payments again. It could also mean that some people will fall into a hole it could take them years to crawl out of, making it difficult to impossible to find a landlord willing to rent to them or an employer willing to hire someone with poor credit.
Second, during the moratorium several of the large loan servicers, those companies that handle the billing and loan-related processes for the Education Department, stopped contracting with the department. As a result, many loans transferred to other servicers. The CFPB reports that that “could complicate the transition to repayment.” Some 40 percent, two in five, borrowers are to begin paying to a new servicer.
Borrowers will first have to find out who their new servicer is. Nate Blanchard, director of financial services at Western Governors University said, “Unless there is a robust proactive and targeted campaign to borrowers, many may be unprepared to restart or begin repayment. The reality of the situation is loan servicers may not have the ability to answer every call, email or chat in a timely manner, which may exacerbate the problem.” Sure, borrowers can go the studentaid.gov to find out who their servicer is, but they have to know their servicer changed.
Many people not only won’t know they have to start paying some new company but also that the moratorium is even over. There may be no way to reach them. So many people in the 18-49 age group, the age group with the most student-loan debt, don’t follow the news. They don’t read newspapers, watch TV news, or get news on the radio. Half of the people get their news from social media, including one-third of them from Facebook and a quarter from YouTube, reports Pew Research. And what they read there might have nothing to do with student loans or they might just skip over those articles. Add to that some young people don’t follow the news at all, regular or social media, and just go about their lives unconcerned with what goes on in the world.
Third, because they don’t follow the news or they get it from sources that might not mention anything about student loan debt, they don’t know that they might be able to get their loan payments lowered. Some borrowers may qualify for payment reductions called Income-drive Repayment through studentaid.gov under the “Repaye plan.” Their website describes it, “Most federal student loans are eligible for at least one income-driven repayment plan. If your income is low enough, your payment could be as low as $0 per month.” Further, they say, “Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. The percentage is different depending on the plan. . . . Generally 10 percent of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.”
But it takes about 60 days for the government to process any claim, and the claims can be submitted no later than December 31.
At least one-third of student-loan borrowers foresee problems repaying their loans once the moratorium lifts, and the one in eight people already behind on their other debts can already expect serious credit issues. Add to that the fact that many loans have new servicers experiencing the possible inability to reach borrowers or who have insufficient staff to deal with the calls they will get, and the problem exacerbates even more. Finally, just failing to reach borrowers to ensure they know student loan repayments are to begin, may mean a toxic brew of credit problems arises. Possibly student-loan repayments may recommence smoothly everything will work out as well as it can be considering people’s debt loads. But that may be looking at the current situation with rose-tinted glasses.
