Student loan borrowers are bracing for payments to resume in January.
Photo by robyn beck/Agence France-Presse/Getty ImagesLike many who borrow money to pay for school, Sandra Hinz planned to use her student loans and the education they financed to improve her job and earnings prospects.
She’d worked for years in administrative roles in medical offices, an experience that inspired her to study to become a medical assistant to enhance her skills and opportunities.
“I just loved what I was doing,” Hinz said. “I wanted to make a little bit more money an hour than I was making, I wasn’t looking to be a millionaire by any means.”
But Hinz, 61, didn’t get that chance. In the middle of her schooling, Hinz’s son was in a devastating motorcycle accident that left him bed and wheelchair bound. Though she was able to graduate, Hinz couldn’t use her degree to work outside the home because she and her husband suddenly had to devote themselves to their son’s 24-hour care.
Though she’s not receiving the financial benefit of her degree, Hinz’s family is still stuck with $27,159 in student loans — on top of her son’s medical bills. When the pandemic hit, she lost the ability to earn overtime as part of her work for a staffing agency caring for her son. Hinz’s husband is retired and so she and her family are living on the $11.80 per hour salary she earns.
Sandra Hinz is feeling temporary relief from her student loans during the COVID payment pause.
One small source of relief for Hinz’s family: The coronavirus-related pause on her student loan payments. But as she looks ahead to when the payments resume — right now, the payment freeze is scheduled to end on Jan. 1, 2021 — Hinz is anxious about paying her bill again and the phone calls and paperwork necessary to ensure her monthly loan bill is manageable.
“Our finances are really tight now, I worry about even keeping the house,” Hinz said. “Right now it’s a big help,” she added, referring to the student loan payment pause, “but I know in the back of my mind — because I’m such a worrier — I know it’s coming, I’m going to have to pay.”
Millions of borrowers prepare to resume student loan payments
Hinz is one of millions of borrowers preparing to have their student loan payments turned back on after a roughly nine-month pause. In March, the CARES Act, the coronavirus relief bill, froze student loan payments, set interest rates on the debt to 0% and stopped debt collections on defaulted loans. Roughly 23.8 million borrowers have taken advantage of the pause by not making payments during this period, according to a report released earlier this month by the U.S. Department of Education.
The pause was initially scheduled to expire at the end of September and over the summer advocates worried about what that might mean for borrowers and the student loan system. In August, President Donald Trump extended the relief period through December 31. Now as that date approaches, stakeholders and borrowers are concerned once again about the impact of resuming payments.
“The notion that the tens of millions of people with student loan debt are somehow no longer struggling in the wake of the fallout of the pandemic is laughable,” said Seth Frotman, the executive director of the Student Borrower Protection Center, an advocacy group. “If the people blocking relief or failing to continue it believe that is the case, it’s just a testament to how out of touch they are and have always been with the true pain and the real struggle that tens of millions of borrowers face throughout the country.”
Megan Tepper hasn't been able to resume her 40-hour workweek during the pandemic.
Megan Tepper is one of those borrowers. For her, the idea of managing her roughly $182,000 in student loans while COVID-19 restrictions are still in place is daunting. The 37-year-old graduated with a doctorate degree in physical therapy about 10 years ago with $114,765 in student debt, a sum that’s ballooned because her monthly payments barely cover the interest.
When the pandemic initially hit, the clinic where she works closed for two-and-a-half months. Now, Tepper, a single mom, still isn’t back to her usual 40 hours per week. Some patients who are immunocompromised don’t feel comfortable coming in and, in addition, the surgical banks that often refer patients to Tepper’s employer were also shut down at the outset of the pandemic and are still catching up.
Add to that the logistics of school and daycare for Tepper’s two young children and coping financially — and just generally — during this period is “not an easy feat,” she said. “If we did not have all of the loans put into a deferment with COVID, we financially would be in a very tough position,” Tepper said.
Student loan companies prepare for an onslaught of calls
Student loan servicers — the companies the government hires to be borrowers’ main point of contact during the student loan repayment process — are preparing for an onslaught of calls from borrowers like Tepper once payments resume. Borrowers whose financial situation may have changed during the pandemic can enter repayment programs to make their bills more manageable, but that will likely require a conversation with their student loan company.
“We’re as ready as we can be given the fact that the system and the capacity was never designed to really deal with turning off and turning on 30 million loans at the same time,” said Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group.
When the system was initially shut off in March, borrowers’ calls were dropped more frequently than typical and they faced challenges getting information from servicers, according to a June Government Accountability Office report. In addition, up to 5 million borrowers had their credit scores inadvertently dinged because of a servicing error.
Buchanan said his organization’s members have learned from the March experience and have likely smoothed out any back-end processing challenges.
Still, “the big challenge is potentially inbound calls,” he said. “To all of the sudden have activity on 30 million accounts and they require questions and answers — that’s the biggest concern that we have is being able to meet that need.”
The recent Federal Student Aid report echoed those worries. “Servicers will face a heavy burden in ‘converting’ millions of borrowers to active repayment at the same time, with a certain proportion becoming delinquent, at least initially,” the report reads.
Borrowers whose financial situation has changed should act now
In the past when borrowers have resumed student loan payments after a pause due to natural disaster, new defaults spiked — a sign that borrowers weren’t aware that payments had resumed or had struggled to get into an affordable repayment program in time.
That pattern has Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, worried about what will happen when the government resumes collecting student loan payments on a much larger scale.
Even if borrowers don’t slip into delinquency or default, the payment resumption could be financially jarring in other ways, Yu said.
“I am very concerned about people having money taken and them not realizing it,” Yu said of borrowers who typically have their student loan payment auto-debited from their bank account. “Was that supposed to be their rent payment? Was that the money they needed for medications? So many people live so close to the edge and unexpected expenses can really cause a lot of family’s finances to go into a tailspin.”
Both servicers and advocates are encouraging borrowers whose financial situation may have changed during the pandemic to contact their student loan companies now and avoid a rush once payments resume.
“We are telling borrowers to operate as if they are repaying on January 1,” said Natalia Abrams, the executive director of Student Debt Crisis, an advocacy group. Her organization is working with Savi, a company that helps borrowers manage the student loan payment process, to offer free access to a web tool borrowers can use to evaluate their repayment options.
Payments could resume on the heels of the holidays
If the payment pause isn’t extended — something that would take either an act of Congress or the president — the date for when payments and collections resume could present particular challenges for borrowers.
For one, it comes on the heels of the holiday season, a time when borrowers are less likely to focus on the paperwork involved in signing up for a manageable student loan repayment plan and when they face additional pressure on their budget.
And for defaulted borrowers whose tax refunds are at risk of being seized to pay back their debt, the January 1 timing is particularly problematic, Yu said. If borrowers file their taxes early in the year — which is not uncommon for people who rely on their tax refund — and student loan payments are turned back on, their tax refund could be seized to repay their debt.
Given that a robust economic recovery doesn’t look likely any time soon, this would come during a period when borrowers would likely need the funds for rent, food, medical expenses or other bills.
“Those folks really need the money right now,” Yu said.
Yu’s organization, NCLC, released a report along with the Center for Responsible Lending this month outlining steps the government could take to support borrowers in the wake of the coronavirus pandemic. The report includes recommendations to cancel the debt of borrowers in default for three years or more and put limits on how much the government can seize from the Earned Income Tax Credit — a benefit to low and moderate-income workers — to repay student debt.
Payments could start again — then stop again
As borrowers and advocates look ahead to a new administration and what that might mean for student loan policy, there’s also a possibility that the payment pause will end as scheduled on January 1, but that the Biden administration could reinstate the freeze following inauguration on January 20. That could create complications for borrowers and the student loan system.
“Any time there’s a change of administration, operationally, that can have an impact, Buchanan said, “and when you have COVID happening at the same time … that’s a nexus of complexity that really exacerbates any potential issues here.”
The possibility of “ping-ponging” between a pause and resumption could create particular challenges for borrowers who are subject to wage garnishment over their defaulted loans, Yu said. In some cases employers took months to stop garnishing borrowers’ wages despite the collections freeze and a small subset of borrowers are still seeing their paychecks garnished, according to court documents.
Throughout the payment pause, the Department of Education has said that it’s working with its default loan servicer to contact employers by phone, emails and mail to stop wage garnishment.
If the Biden administration decides to resume the payment pause, Frotman said he’s hopeful they’ll use the period to address broader challenges plaguing the student loan program. His organization released a report this month with Demos, a progressive think tank, outlining steps the new administration could take to ensure that public servants, disabled borrowers and scammed students receive the student loan relief congress promised them.
If an “incoming Biden administration does put in place a payment pause, a really important thing is to ensure while borrowers’ payments are paused, you’re actually fixing the underlying system,” Frotman said.
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