Student Loan Borrowers Will Struggle With Repayment : According to a new analysis from the federal Consumer Financial Protection Bureau, 1 in 5 borrowers could face hardship when monthly federal student loan payments resume after June 30 after more than three years on hold.
It is also possible that borrowers could fall behind on other debt obligations when they resume student loan payments. According to the June 7 CFPB report, which examined a sample of about 32 million students with outstanding federal loans, more than one in 13 students are behind on other bills, up from before the pandemic.
There is a possibility that President Joe Biden’s one-time debt cancellation plan could have an impact on these findings. By the end of June, the Supreme Court will determine whether the proposal to erase up to $20,000 in student loan debt per borrower is feasible. However, even if the Supreme Court upholds Biden’s student debt plan, payments will still resume this summer for any remaining debt.
A number of risk factors are also mentioned in the CFPB report, such as the age of the borrower and the fact that millions of loans are being transferred between servicers. You can put yourself in a better position if you think you’ll struggle with repayment when it resumes.
Budget concerns plague young borrowers
Student loan payments will be fit into budgets for the first time when borrowers leave school and exhaust their six-month grace period. It could be challenging, especially if they rented a more expensive apartment, financed a car or took on other debt on the assumption that they could afford them.
According to the CFPB, many have done just that. The monthly bills of younger borrowers (ages 18-29) are higher now than they were prior to forbearance. In March 2020, young student loan borrowers had median nonstudent loan, nonmortgage monthly payments of about $65; now they have near $200.
Servicer switches complicate repayment
Over the past three years, the servicer that manages your student loan payments may have switched. By March 2020, more than 14 million borrowers – 44% of the CFPB’s sample – will have to work with at least one new student loan servicer.
Due to this, borrowers may have to find out who their new servicer is, as well as create new logins with their new servicer and sign up for automatic payments again.
When student loans resume, what should you do?
This report paints a bleak picture of what’s to come in a few months, but student loan borrowers still have time to get ahead of payments. You will need to make a plan if you do not pay your bills when they resume, since not doing so could result in student loan default, credit score damage, and wage garnishment.
You can set yourself up for success and avoid missing payments by taking these steps today.
Your income dropped, or you’re already struggling with other expenses
Student loan debt can be erased after a certain number of years with an income-driven repayment (IDR) plan that caps your monthly loan payments at a certain percentage of your income. It is possible to owe as little as $0 per month.
Interested students should contact their student loan servicer to sign up. Putting yourself on an IDR plan when payments resume is as easy as submitting paperwork now.
If you have switched service providers
The landscape of federal student loan servicers may have changed over the past few years. When this happens, you’re supposed to receive a letter or email from both your old and new credit card companies. However, if you have moved, for instance, you might not have received a notification.
You can find out who your servicer is by logging into My Federal Student Aid with your FSA ID. Your current servicer can be found there, along with a video