Student Loan Pause Will Still Cause Chaos Long After Its Over: Borrowers Panic, Overwhelm Loan Services
Millions of Americans who are scheduled to begin making their student loan payments in the coming weeks for the first time in more than three years face budgetary and other issues while the system itself could also become overloaded.
That is according to a recent report from Insider about the upcoming end to the pause on the payments.
Payments were deferred for all borrowers in early 2020 during the onset of the COVID pandemic.
The government continued to extend those deferments while seeking to forgive loans for millions of borrowers who owed less than $20,000.
But the U.S. Supreme Court ruled against this broad forgiveness plan to cut $10,000 off the books for qualifying borrowers who took loans and $20,000 in total for people who had also received Pell Grants.
Now, the pause is over, and interest on student loans resumed on Sept. 1. Meanwhile, payments for those who have cut a deal with their respective lenders will start up again in October.
But are borrowers ready to begin making payments with their budgets stretched thin by inflation and other economic factors, and can services handle an influx of millions of people who are ready to start making their payments again?
According to Insider’s Ayelet Sheffey, chaos could consume borrowers, the companies that are contracted to collect the debt and the U.S. Department of Education.
According to the Education Data Initiative, more than 43 million Americans owe a collective $1.774 trillion in student debt.
That’s a lot of people and a lot of outstanding debt, and according to Sheffey, the coming months could be chaotic.
One issue that borrowers face is an economy that has changed drastically since the last time most of them made regular payments.
Over the course of the last three years, budget-busting inflation has skyrocketed, which could cause problems for people who are already living on tight budgets.
Multiple income repayment plans are available for those who qualify.
But according to Sheffey, loan servicers are struggling to keep up with the amount of people who are preparing to start making their payments and who are working out those deals.
A woman with one such servicer, who was not named, admitted to Insider that the company had mistakenly set her up for payments of $49,000 monthly.
The error was corrected, but the borrower is still waiting for news on how much to pay and when. The servicer Nelnet closed its call center and website — several times — as it did not have the capacity to deal with panicked borrowers.
The strain on the servicers is so great that staffing shortages and other issues have countless borrowers waiting to even speak to someone about resuming their payments.
According to a recent survey by The College Investor, 58 percent of borrowers had not yet been told what their repayment amount would be.
Another 57 percent said that they were using money that would have otherwise gone to student loan payments to pay for essentials, such as food.
When asked about their living expenses, 53 percent of borrowers who participated in the survey said their lives had become more expansive than they were 42 months ago — when payments were paused in March 2020.
But many people have never made a payment and might not be prepared to do so.
On top of the country’s economic woes and a strain on servicers, Sheffey also reported the Department of Education lacks the financial and personnel resources to help borrowers and lenders get on the same page.
“There’s a lot of confusion and questions that borrowers have about what their obligations and options are right now,” said Carolyn Fast, a senior fellow with the think tank The Century Foundation. “Many are worried that it could be a perfect storm of bureaucratic obstacles for borrowers.”
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