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New York Times
02-05-2025
- Business
- New York Times
Tips for Navigating the ‘Chaotic System' of Student Loan Repayments
So you're about to graduate from college. Congratulations. But now you have to think about finding a job and, sooner than you may prefer, starting to repay your student loans. It's especially important to understand your options, experts on student borrowing say, because many aspects of the federal student loan system are in flux. The system, which has always been challenging to navigate, is only now creaking back into full operation after years of Covid-era pauses on payments and collections. And court challenges to a low-cost repayment option, along with program changes floated by the Trump administration and House Republicans, have created a potentially confusing environment for new graduates. 'They're graduating into a time of uncertainty around what their repayment options will look like,' said Abby Shafroth, the director of the National Consumer Law Center's Student Loan Borrower Assistance Project. One repayment plan, known as SAVE and introduced by President Joseph R. Biden Jr., significantly shrank monthly student loan payments depending on a borrower's income and household size. But the program is in legal limbo because of a court challenge by two groups of Republican-led states. It's unavailable now, and may not remain an option. Three other, less generous 'income-driven' repayment plans that link monthly payments to a borrower's income remain available, but details could change. A measure under review in the House would reduce the various income-linked options to just one. 'Borrowers are getting dropped into a chaotic system that's changing in real time,' said Winston Berkman-Breen, the legal director at the Student Borrower Protection Center, an advocacy group. The upshot is that new graduates should keep in mind that the repayment plan they initially choose may look different in the coming months or years, depending on court decisions, government action and the effective date of any changes. 'They should focus on what's available now and which plan makes the most sense now,' Ms. Shafroth said, 'and expect they may have to revisit options later.' Here's what to know. Do I have to start repaying my federal student loans right away? Most federal student loans come with a grace period of at least six months after graduation. So you have some breathing room to get your life sorted and to choose a repayment plan. If you graduate in May, you typically won't have to start paying until around November. What should I be doing now to help repayment go smoothly? Student borrowers are required before graduation to complete student loan 'exit counseling' — often via a 30-minute online tutorial — to learn about their loan obligations and repayment options. Pay attention to the information because it can keep you on track, said Michele Zampini, the senior director of college affordability with the Institute for College Access & Success, an advocacy group. Familiarize yourself with the available repayment plans, said Betsy Mayotte, the president of the Institute of Student Loan Advisors, which offers free assistance to borrowers. You can check the Federal Student Aid website to compare options and see any updates that may affect your loans. It may sound obvious, but make sure that your loan servicer — the company that the Education Department has hired to send statements, collect payments and otherwise manage your loan — knows how to get in touch with you once you leave school, Ms. Mayotte said. If you don't know which servicer you have, log on to your account at the federal website to find out. Then get in touch to update your contact information, including your addresses for both email and physical mail. (You probably created the account when you applied for financial aid using the Free Application for Federal Student Aid, or FAFSA, form.) If you have loans from outside the federal government, such as a private bank, those won't show up on the Federal Student Aid website. If you can't find the original loan documents, try looking for the lender's name on your credit report, Ms. Mayotte said. When should I choose a repayment plan? Some experts said borrowers should apply as soon as possible for an income-driven plan to get their applications in the queue. But Scott Buchanan, the executive director of the Student Loan Servicing Alliance, an industry group, said borrowers in a grace period should wait to submit an application for an income-driven plan until a month or two before they are scheduled to start paying. If they apply more than 90 days before then, he said, their servicer will reject it as a 'stale' application. For those who have to start paying in November, he said, submitting a form in September makes sense. On the other hand, Mr. Buchanan said, don't wait until the last minute or you'll end up scrambling to put a plan in place. Processing of income-driven repayment plan applications had been on hold as a result of the legal challenge to the SAVE plan. But the Federal Student Aid website, last updated on Monday, says that servicers 'have begun processing applications' and that the site will be updated as new information becomes available. There is a backlog of some 1.9 million applications. How do I know how much my monthly payment will be? Your monthly payment amount depends on which repayment plan you choose. The standard plan — the default option, unless you choose another — calls for repaying loan balances in 10 years. Income-driven plans can lower your payments by tying them to your income level and household size. The repayment period, depending on the plan, lasts 20 to 25 years. To get payment estimates under the various options, enter information about yourself and your loans into the Education Department's online 'loan simulator' tool. Mark Kantrowitz, a financial-aid expert, advised borrowers to choose the plan with the highest payment they can afford. They'll pay less interest over the life of the loan and will pay off the debt sooner. Borrowers can use 'forbearances,' or temporary deferments, during short-term financial struggles and switch to a more affordable plan for longer-term difficulties. Are student loan forgiveness programs still available? Yes, but it's complicated. For instance, borrowers in the Income-Based Repayment plan, which Congress created, can continue to have their loans forgiven if they make enough qualifying payments. The Education Department, however, has temporarily paused time-based forgiveness for borrowers in two other income-driven plans, known as Pay as You Earn (PAYE) and Income-Contingent Repayment (I.C.R.), because a court ruling on the Biden administration's SAVE plan raised questions about those plans as well. Payments made in PAYE and I.C.R., however, can still count toward forgiveness if the borrower transfers to an Income-Based Repayment plan later, Ms. Shafroth said. She added that payments in PAYE and I.C.R. still counted toward the public-service loan forgiveness program, which erases remaining loan balances after 10 years of work in public-sector or nonprofit jobs. (People using the public-service option generally enroll in an income-driven plan.) Additional changes may be coming, The Trump administration has solicited public comments on a review of the public-service program. President Trump signed an executive order in March that said the administration planned to exclude from the program certain organizations, such as those that 'advance illegal immigration.' Hundreds of comments have been posted online, many of them in support of the public-service program. Comments will be accepted through Thursday.
Boston Globe
01-03-2025
- Business
- Boston Globe
Student loan borrowers blocked from affordable repayment plans
The SAVE plan has been in legal limbo ever since, and participants' payments have been on hold since last summer. But last week, applications to the three other income-driven plans were also taken down -- older programs that hadn't been subject to any litigation. That effectively shut the door to more affordable plans for borrowers in financial distress, and eliminated a crucial component needed to participate in the Public Service Loan Forgiveness program -- at least temporarily. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up "The department is reviewing repayment applications to conform with the 8th Circuit's ruling," a spokesperson for the Education Department said Thursday, adding that it updated information for borrowers on including on a page about court actions related to SAVE. Advertisement Here's what we know now: What just happened? The 8th Circuit upheld a temporary ban on a portion of the SAVE plan issued by the U.S. District Court for the Eastern District of Missouri. The appeals court sent the case back to the district court with instructions to expand the preliminary injunction to the entire SAVE rule (although other legal rulings had already temporarily suspended the program). But the appellate court didn't stop there: The judges also said the Education Department secretary lacks the explicit authority to grant loan forgiveness in any Income-Contingent Repayment plans, even though it has been done for more than three decades. (Borrowers make monthly payments equal to a percentage of their discretionary income, which varies across income-driven plans. But after a set number of years, usually 20 to 25, any remaining balance is canceled.) Advertisement "This is a radical departure from how this statute has been interpreted and administered for nearly 30 years," said Michele Zampini, senior director of college affordability at the Institute for College Access and Success, a research and advocacy group. The Education Department posted a banner on its website that said the injunction prevents it from administering SAVE and parts of other income-driven plans -- and, as a result, applications for those plans and online loan consolidations were unavailable. It is important to remember that the decision is not final and that litigation is continuing, said Abby Shafroth, director of the National Consumer Law Center's Student Loan Borrower Assistance Project. "But the decision is very worrying for borrowers who depend on the SAVE plan to manage their payments and work toward being debt free," she said. What's likely to happen next? Scott Buchanan, executive director of the Student Loan Servicing Alliance, an industry group, said he would expect that applications for at least one of the income-driven plans, known as income-based repayment, will become available again "as soon as practical." The reasons are complicated: That's because the income-based repayment plan was created as part of a July 2009 law, which explicitly permits loan cancellation at the end of the repayment term, whereas SAVE was a regulation established by the department using authority established under a 1993 law. The states that initially brought the lawsuit argued that loan cancellation wasn't explicitly permitted under the 1993 law, and the appellate court sided with that interpretation. But the department has relied on that authority to create three other income-driven programs, all before SAVE, each of which incrementally improved on the plans before it. They were Income-Contingent Repayment, introduced in 1994; Pay As You Earn (PAYE), introduced in 2012; and Revised Pay As You Earn (REPAYE), which became available in 2015 and was replaced by SAVE. Advertisement Are income-driven loan applications being processed now? No, all applications have been temporarily halted, according to Buchanan. He said the servicers have received instructions to stop processing the income-driven and loan-consolidation applications for three months, but he expected they will receive additional guidance in the coming weeks. Monthly payments are still being collected on the other existing income-driven plans (Income-Based Repayment, Pay As You Earn and Income-Contingent Repayment) while SAVE borrowers remain in an interest-free forbearance while the litigation continues. Is the Public Service Loan Forgiveness program still available? Yes, it is still open to government and nonprofit employees such as public schoolteachers, librarians and public defenders. After 120 qualifying payments are made, any remaining balance is wiped out. But there is one major obstruction: Most borrowers need to be enrolled in an income-driven repayment plan to be eligible for loan cancellation, and it's not possible to apply to any of those plans right now. If you're already in a qualifying repayment plan, however, and you become newly eligible for the public service program (because of a new job, for example), you can still enroll. But if you're in the SAVE plan, where payments have been halted because of the ongoing litigation, your qualifying payments have also been put on hold -- and you can't make any progress toward forgiveness. The public service program, which President George W. Bush signed into law in 2007, is not at risk right now, and student-loan experts say there isn't a broad appetite dismantle the popular program, which would require Congress to pass a bill. Advertisement What if I'm close to making all of my payments in the public service program, but I am stuck in the SAVE plan? More than 2 million people are enrolled in the public service program and hundreds of thousands of them are approaching the finish line: About 21,700 borrowers have made enough payments to qualify for cancellation, while 330,100 had made 97 to 119 qualifying payments as of Dec. 31, according to data from the Education Department's Federal Student Aid office. Borrowers who are enrolled in the SAVE plan and have nearly enough qualifying payments have few good options. "Borrowers stuck in SAVE can either wait for the IDR applications to open back up and switch to another IDR plan," said Betsy Mayotte, president of the Institute of Student Loan Advisors, a group that provides free guidance to borrowers. "Or ride out the SAVE forbearance and plan on using what's called 'buyback' to get credit for those months once they have certified 120 months of eligible employment." What are my options if I can't afford payments (because I lost my job or some other reason)? There are other options besides income-driven repayment plans that can generally be requested through your loan servicer or the company that manages your payments. Borrowers can temporarily pause payments through deferments or forbearance, but those programs have different eligibility requirements and consequences, largely because of the way interest is treated. "Borrowers can receive deferments for things such as economic hardship or being unemployed," said Mayotte. "Forbearances are generally applied in cases of less specific financial hardship." Advertisement There are other repayment plans that can lower your monthly obligation: graduated repayment, where payments start lower and rise over time, and extended repayment, which lowers the monthly payment by lengthening the loan term. Simply consolidating your loans can also lower your monthly payments by extending the repayment period, but there are drawbacks. You may have a higher interest rate on all of your debt, and you'll end up paying more overall. Will I be penalized if I cannot recertify my loans? Each year, borrowers enrolled in income-driven repayment plans must recertify their income or face negative consequences, including being kicked out of the repayment plan. But those applications are also not available right now. For now, it's not something you need to worry about, Buchanan said. The loan servicers have been instructed to push back those deadlines on a month-by-month basis, and they will be in touch with borrowers when they receive more clarity from the Education Department. This article originally appeared in
