The student loan repayment restart has been rough for millions of borrowers.
New federal data shows how bad things have gotten: 2 out of every 5 borrowers haven’t been able to pay their bills.
Based on my conversations with borrowers, there are three primary reasons people haven’t made payments.
Issue 1: Servicer Problems are a Roadblock to Making Payments
At this point, federal student loan servicing at the restart has been a well-documented mess.
Expecting borrowers to wait for an hour or two on hold is unreasonable. Likewise, giving borrowers conflicting information will only create more problems.
It’s hard to fault borrowers for not making payments when servicers are not charging them the right amount or when they can’t even talk to a person to get their questions answered.
The hope is that things will gradually calm down and that servicers will be sufficiently incentivized by the Department of Education withholding payments.
For now, borrowers will need to be patient and strategic in how they interact with servicers. Sadly, it is impossible to avoid interacting with servicers in most cases.
Looking Closer: The Department of Education seems to agree that this is the most pressing issue for borrowers. In a blog post, they explained that many borrowers didn’t make payments because they were “confused or overwhelmed about their options.”
Issue 2: Unaffordable Monthly Payments
I’ll preface this issue by saying the new SAVE plan is awesome. Borrowers can get lower monthly bills and even qualify for a subsidy that could be worth hundreds of dollars each month.
The borrowers who benefit the most from SAVE are the lower-income borrowers who qualify for $0 per month payments.
The middle-income borrowers appear to be struggling the most. SAVE lowers their monthly bills, but in many cases, finding an extra $100 or $200 per month is a significant hardship.
If monthly payments were more affordable, more than 60% of borrowers would make payments.
Sherpa Thought: This particular issue is likely a smaller problem than issue one. SAVE may not be a perfect repayment plan, but it is by far the best option available for most borrowers, and the vast majority of borrowers should find it affordable.
About 3 million borrowers have already qualified for $0 per month payments on SAVE.
Issue 3: Bad Advice About the Restart
Long before the restart, the Department of Education announced an on-ramp to help borrowers transition back to repayment. This on-ramp has been a critical resource for the 40% of borrowers not making payments so far.
During the on-ramp period, which lasts through September of next year, borrowers won’t face negative credit reporting or aggressive debt collection tactics from the Department of Education.
Unfortunately, some in the media have mischaracterized this program. Many have claimed that federal borrowers don’t need to make payments for the first year. For the vast majority of borrowers, skipping payments during this time is a terrible idea.
By not making payments during the on-ramp, borrowers lose out on valuable progress toward forgiveness, and potential assistance with interest payments.
Getting Started with Repayment
If you are one of the 8.8 million borrowers who haven’t made a payment yet, now is the time to get started.
I’d suggest starting by getting a quick estimate of your monthly SAVE bill.
If SAVE looks like it is going to be an affordable option, use studentaid.gov to apply for the new plan.
Calls to servicers to get questions answered and payments set up may still be necessary. It is frustrating but unavoidable.
Doing your homework and researching your options before calling your servicer increases the odds of getting things resolved in a single call.