Hey, I didn't tell you to borrow a shitload of money to get a degree in Greek Mythology! Your mistake, pay up. Don't expect me as a taxpayer to save your stupid ass.
I need to be more empathetic. Perhaps next year.
Student Borrowers, After Three-Year Reprieve, Must Now Pay
Changes in loan system may complicate repayment efforts following Supreme Court ruling
By Gabriel T. Rubin and Andrew Restuccia, WSJ
July 2, 2023 7:00 am ET
WASHINGTON—The Supreme Court’s decision to strike down President Biden’s mass student-debt cancellation plan thrusts borrowers back into a repayment system that millions had hoped they would never see again.
Payments and interest accrual on federal student loans have been paused for more than three years, since the pandemic prompted the Trump administration and Congress to freeze them in March 2020. During that time, the Biden administration has sought to completely overhaul how borrowers pay off their debts.
There have been other changes that could make repayment more complicated for some borrowers. Millions of student loan holders have graduated from schools (or left without a degree) since 2020, and have never made a payment or been assigned to a loan servicing company.
Millions of others have had their accounts moved between servicers as firms such as Navient, formerly Sallie Mae, left the federal student loan business altogether in recent years. According to a June report by the Consumer Financial Protection Bureau, more than four in 10 borrowers will return to repayment with a new student loan servicer.
“I’m really worried about this group,” said Aaron Ament, president of the National Student Legal Defense Network. “We’re still waiting on a plan to help students who are really at risk when payments are restarted.”
Biden on Friday said he would launch a new effort to forgive student loans on a large scale using a different legal authority than the one that the Supreme Court blocked. The details of that program, including when it will be finalized and how many people it will cover, are still unclear, adding fresh uncertainty for borrowers.
Meanwhile, the Biden administration has undertaken an overhaul of how borrowers pay off their loans, revamping income-based repayment programs and rewriting accountability regulations for for-profit schools.
First months of payments ‘really crucial’
Expanding income-driven repayment plans is the administration’s main strategy for preventing loan balances from ballooning in the future, and while their new terms got less attention than mass debt cancellation, they could cost far more over time than a one-time cancellation plan would, according to estimates by the Penn Wharton Budget Model.
IDR plans were designed to help lower earners borrow for college, but in their current form, few have been able to use them effectively because of technical problems and onerous amounts of income-verification paperwork.
The administration’s proposed changes would provide qualifying borrowers with more-generous options that could leave them debt-free sooner, while paying off only a fraction of their balances. The plan, which the Education Department finalized on Friday, will cut payments to zero for borrowers making $32,800 or less a year. The department estimated it will save all other borrowers at least $1,000 a year.
The Education Department has just a few months to implement the new plan and communicate it to borrowers before payments restart in October.
“We know that those first few months can be really crucial in making sure that folks get on track and stay on track early,” said Brian Denten, a student debt expert at Pew Charitable Trusts, at a recent panel focused on borrower defaults. “A big part of that is getting the department’s revised repayment plan available to borrowers as quickly as possible.”
Missed payments won’t be sent to collections
The Biden administration is taking steps to help borrowers with the transition. For one year, beginning on Oct. 1, borrowers who miss payments won’t be referred to collections agencies, reported to credit bureaus or put in default, according to the White House.
Typically, a borrower defaults on their student loans if they fail to make payments for 270 days, so a possible jump won’t be visible in the first months after bills restart. But servicers are devoting extra resources to the borrowers who are most at risk. The problem is that they lack visibility into the borrower pools that will be most in need of extra counseling and assistance. It likely won’t just be new graduates who left school in the past six months who need the assistance.
Servicers will be working with fewer resources than they sought. Congress held funding flat for the Office of Federal Student Aid for the current fiscal year at $2 billion, despite the administration’s request of an additional $620 billion. As a result, servicers will likely need to cut customer service staffing and wait times could swell.
“Talk to your servicer today, because we don’t know what our resources are going to look like in September,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, the main loan servicer industry group.
Write to Gabriel T. Rubin at gabriel.rubin@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com
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