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Rachel 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 has seen all her expenses skyrocket over the past few years amid soaring inflation. “I go grocery shopping and spend $300 or $400 to buy two weeks of food for my house,” said Brooks, 35. Her mother recently moved in with her because she doesn’t earn enough as an office manager to afford the rents in Los Angeles where they live.
Although Brooks earns around $100,000 as a high school principal, her student loan balance is around $240,000. She has already calculated how much her new payments will be.
“With an extra $600 a month, where will that come from?” Brooks said.
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Millions of other people are probably asking a similar question.
The more than three-year moratorium on federal student loan payments is set to expire in a matter of months. The Biden administration is preparing borrowers to resume their payments by September, even while the loan forgiveness program is on hold while the Supreme Court debates its viability. The debt ceiling deal passed by Congress also includes a provision that formally ends the pandemic-era relief policy and makes it harder for the US Department of Education to extend it.
“The emergency period has ended, and we are preparing borrowers to resume work,” Education Secretary Miguel Cardona said at a Senate hearing last month.
The average borrower has saved $15,000 due to a payment interruption
Former President Donald Trump He first announced a halt to federal student loan bills and accrual of interest in March 2020, when the coronavirus pandemic struck the United States and crippled the economy. The hiatus has been extended eight times since then.
Nearly all eligible people have benefited from it, with less than 1% of eligible borrowers continuing to pay education debt, according to an analysis by higher education expert Mark Kantrowitz.
As a result of the policy, Kantrowitz said, the average borrower likely saved about $15,000 in student loan payments. The typical monthly bill is just under $350 per month.
“There will be some initial chaos.”
Since there is no lending precedent for borrowers obtaining such a long deferral of their bills, there is little evidence to report what will happen when payments resume.
But Kantrowitz expects most borrowers to adjust very quickly.
“There will be some initial chaos, but it should settle in a few months,” he said.
However, the Undersecretary of the Ministry of Education James Kavale He warned earlier this year that if the administration is unable to implement President Joe Biden’s plan to forego up to $20,000 in student debt to borrowers, default and default rates could skyrocket.
Kaval said in a court note that during previous natural disasters, borrowers were offered shorter forbearance, and many were left behind when their payments resumed.
″[T]He added that the one-time student loan debt forgiveness program was intended to avoid this problem.
House Speaker Kevin McCarthy has praised the clause in the debt ceiling agreement that formally ends the suspension of bills by September, saying the Biden administration “can [no] Using Covid for a longer period as an excuse to pause paying student loans.”
“It also requires borrowers to be responsible for paying their student loans again,” McCarthy said books on Twitter.
However, consumer advocates say the problems faced by student loan borrowers are far from over.
“Borrowers are not ready to resume payments,” said Persis Yu, deputy executive director at the Student Borrower Protection Center. “Even if the virus threat has diminished, the financial fallout has not.”
Before the public health crisis, when the American economy was enjoying one of its healthiest periods in history, there were still problems plaguing the federal student loan system. Some experts have compared it to the subprime mortgage crisis of 2008.
Only about half of all borrowers were in repayment in 2019, Kantrowitz estimates. About 25% – or more than 10 million people – were in delinquency or default, and the remainder applied for temporary relief measures for defaulted borrowers, including deferment or forbearance.
“I think they might be in worse shape,” Yu said of these people. Which is why President Biden’s debt relief program is so important.
Last year, the Biden administration announced a new program that will give distressed borrowers access to the current situation. However, Yu said that “management has barely begun to raise awareness” about the program.
The Education Ministry did not immediately respond to a request for comment.
Yu is also concerned about recent employee turnover and layoffs among student loan servicing staff, who faced criticism and complaints from advocates, regulators and borrowers long before Covid.
During the payment pause, three companies that had been administering the loans — Navient, the Pennsylvania Higher Education Assistance Agency (also known as FedLoan), and Granite State — said they were terminating their relationship with the government. As a result, about 16 million borrowers will have a different company to deal with by the time payments resume, or soon after.
“It is critical that people understand that the student loan system is not ready to go back into repayment,” Yu said. “We are relying on completely new services and expect them to help millions of borrowers through a byzantine system in one go.”
Half of Paul Berlett’s monthly income goes to 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 afford his student loan payments in September, Perlett plans to cut down on the amount of food he buys. Although he would technically be able to make an extra $250 per month by doing this, he doesn’t think he has to make these kinds of decisions.
“There’s no reason for someone to take out loans to become a teacher,” said Berlett, 23. “But to be able to serve my community, I needed to owe myself.”
Starting in the fall, he expects to return to the diet he ate as a broke college student.
“When I go grocery shopping now,” he said, “I can buy fresh ingredients, vegetables, and a piece of salmon if I want to.” “But this will go away, and I will return to it [instant rice] and beans.”
Brooks also doesn’t think she should be hundreds of thousands of dollars in debt for her education.
She said her parents did not attend college. Her mother was a waitress most of her life. Her father was not around. To finance her degrees, she turned to government loans.
“By getting an education, I was working to better myself and get out of poverty,” Brooks said.
Her student debt made this task difficult. She worries about the continuing consequences.
Her daughter, Maria, will start university on her own in three years. During the pause in student loan payments, Brooks was able to set aside $150 a month for Maria’s education.
But starting in September, you won’t be able to do that anymore.