Global Courant
Jamilla Vanbuckley would like to buy a house one day.
Vanbuckley, a correctional counselor in New York City, lives with her parents and puts as much money as she can into her savings account. But by the end of the summer, she expects another expense in her monthly budget, gradually paying off $68,000 in student debt.
“I will have to tap into my savings to start paying back on August 29,” she said, referring to the day when direct federal student loan payments resume. “And that is now hindering the goals I had set for myself for the next few years.”
Vanbuckley is among 37 million borrowers who have not been able to pay their student loans as of March 2020 due to legislative and executive action during the pandemic.
Younger Americans are bracing for changes in student loan payments
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Education Secretary Miguel Cardona confirmed in May that the Biden administration plans to restart student loan payments with 60 days past June 30, a plan that was later cemented in the administration’s deal to suspend the debt ceiling.
However, advocates worry that the resumption of payments and the legal challenges to President Joe Biden’s plan to cancel up to $20,000 in student debt could have catastrophic consequences for vulnerable borrowers.
The uncertainty comes amid a change in debt service companies for millions of borrowers and staff shortages that experts say are unprecedented in consumer finance, resulting in logistical headaches, hours of wait times and potential billing communication errors.
“Anyone who has paid attention to the student loan system sees a train crash coming, and there is little time at this point to try to avoid it,” said Abby Shafroth, a senior attorney at the National Consumer Law Center and the director of the student loan aid project.
Why is this change taking place?
According to Professor Nick Hillman of the University of Wisconsin, Madison, the original break in student loan payments happened in the early days of the pandemic.
Fearing that the sudden spike in unemployment could cause many borrowers to default, the government has placed millions of federal direct student loans under administrative scrutiny and lowered their interest rate to zero percent.
With the end of the federal COVID emergency, the government lost its ability to continue the student loan pause originally authorized by the Higher Education Relief Opportunities for Students Act of 2003, Hillman said.
The deal between Republicans in Congress and Biden to suspend the debt ceiling confirmed that student debt service would resume this summer. With the change, experts worry that the historically low student loan delinquency rate will return to its previous high of 10 percent or worse.
“We anticipate what has been described as a wave of student loan defaults and delinquencies,” said Cody Hounanian, executive director of the nonprofit Student Debt Crisis Center.
What factors make change difficult?
Without having to pay for student loans for the past three years, many Americans have set strict budgets that do not include monthly student loan payments, according to Shafroth. With a new monthly student loan bill averaging $160, something has to be given in these budgets.
“Recreational spending is probably gone,” Robert Bistoury, a 2020 graduate of Baruch College who said he has $27,000 in student debt, told ABC News.
Both Hounanian and Shafroth worry that borrowers will cut their budgets for rent, medical expenses and food.
“For the majority of people, this is just another bill they have to pay, the amount of which they may not even realize,” says Professor Dalié Jiménez of the University of California, Irvine.
The resumption of payments is complicated by the logistical hurdle of suddenly resuming payments for millions of Americans, which a Department of Education spokesperson described to ABC News as “unprecedented” and “massive.”
According to Shafroth, multiple student loan companies have exited the industry, meaning millions of borrowers will also be dealing with an unknown company that may not have current borrower contact information.
For example, Vanbuckley’s student loan manager moved from the Great Lakes Higher Education Corporation, which no longer provides student loans, to NelNet—a transition she described as relatively smooth. Others, such as Hounanian, described a more chaotic switch that included receiving false information from his valet that needed correction.
Shafroth added that many loan managers have cut staff during the pandemic and will need to hire and train new employees to meet the demand for aid, further complicated by a smaller-than-desired budget for the Department of Education this year.
Those restrictions “could lead to somewhat longer processing times and wait times than would be ideal for this situation,” Scott Buchanan, the executive director of the Student Loan Servicing Alliance, said in a statement to ABC News.
The Department of Education spokesman told ABC News it recognizes that the return to repayment will result in “significant financial hardship” for borrowers, but is committed to helping borrowers.
Perhaps the most significant unknown to borrowers is the fate of the Biden administration’s plan to get rid of up to $20,000 in student debt, which faces a legal challenge in the Supreme Court. On Wednesday, Biden vetoed a bill that would reverse the debt relief program, and the likelihood of the bill being successfully overruled in Congress is slim.
“It gives me some anxiety…it is what it is, and I have to budget accordingly,” Vanbuckley said of the stalled plan.
Who is the most vulnerable?
Experts worry that the shift to paying back student loans is putting vulnerable Americans in financial straits and creating opportunities for bad actors. For borrowers still figuring out how to pay their monthly student loan bill, some may turn to companies that promise student loan relief but are nothing more than scams preying on vulnerable consumers, Hounanian said.
“We know that many companies prey on the confusion and anxiety and stress that people feel about their student loans,” Shafroth said.
A sign reading Cancel Student Debt is staged outside the Supreme Court in Washington, DC, February 28, 2023.
Sarah Silbiger for The Washington Post via Getty Images, FILE
Prior to the change, experts recommend that borrowers confirm the contact details of their loan managers and their repayment plan. The Department of Education offers a new income-driven program for borrowers and has released loans for borrowers who qualify because of public service, disability or college misconduct.
In particular, Hillman encouraged borrowers with debts less than $20,000 to confirm their service and repayment plan, especially given the uncertainty surrounding loan forgiveness.
According to Hillman, while six-figure loans tend to attract media attention, borrowers with “smaller” loans who never graduated have the highest number of defaults.
