Truth about Repayment
Forbearance on federal student loans expires on May 1, 2022. Most borrowers will have gone over two years without making a payment by then.
Their loans will not be totally wiped out or forgiven by the DOE before that date, and they will be compelled to begin making monthly payments on their remaining balance.
Even Student Debt Hero's Certified Student Loan Counselor Andrew Pentis, who projected earlier this year that some form of forgiveness, such as a $10,000 loan cancellation policy, may be implemented for all borrowers by the end of 2021, has been proven inaccurate as we enter 2022.
At least a dozen experts concur, according to Time.com, that complete loan forgiveness in America is becoming less and less likely as time goes on. And they were all in agreement on one thing:
Don’t count on it happening.
“I don’t think total student debt cancellation is going to happen,” says Tisa Canady, founder and managing director of an educational research and consulting firm. “It’s something that seems to be such a polarizing issue. I could be wrong, but I just don’t see Congress coming together on this.”
Students who borrowed money to go to school will always be responsible for repaying that loan. There is much disagreement about whether mass forgiveness should take place, however a recent piece in the New Yorker stated that "bulk student loan forgiveness is a horrible notion as a matter of policy." The majority of student debt is held by higher-income persons who do not require government assistance."
Safety Programs Already Exist
Fortunately, there are programs in place to help every American meet their student loan repayment obligations, regardless of what they thought was achievable when they took out the loans.
These federal programs are intended to assist each borrower in making their payments and focusing on resolving their debt in the long run, rather than watching their debt grow with no end in sight.
Most analysts believe that this is a better option for the government than a blanket approach that forgives a percentage of all borrowers' student loans. Existing federal loan programs, such as income-driven repayment plans and the Public Service Loan Forgiveness program, will continue to be targeted for reform. "I think we've seen a little bit of it," The College Investor's Robert Farrington remarked. "We don't see much from Congress, but we do see the present administration striving to improve existing programs," Farrington adds. "It's becoming increasingly evident that borrowers should not expect any form of universal student loan forgiveness," says the author.
Fortunately, all payments currently in emergency forbearance due to the CARES Act at $0/mth and 0% interest are still being counted as qualifying payments for borrower’s enrolled in federally run repayment plans.
Servicer Transfers Historically Lead to Reporting Errors
As repayment approaches, a significant problem that many borrowers may overlook is ensuring that appropriate reporting is taking place on their accounts. Between now and the end of 2022, some servicers are ending their contracts with the Department of Education, departing the sector, and moving tens of millions of loans to other providers. This brings a whole new factor to the table, one that has typically resulted in a flood of reporting inaccuracies. Loan holders must be more attentive than ever before when scrutinizing the information that is reported, or in some circumstances concealed, on their behalf.
PHEAA (FedLoan), Granite State, and Navient have all stated in recent months that they will be terminating or shifting their contracts with the federal government, which will result in the transfer of about 16 million borrowers to a new servicer. With only a few months until student loan payments begin, senators are pressing loan servicers to provide detailed plans to ensure that account issues are resolved and that adequate staffing and paperwork are in place to protect borrowers during the transition.
“Student loan servicers have a long history of misleading borrowers about available options, mismanaging programs, and cheating borrowers out of protections developed to help them pay back their student loans. In previous transfers, failures to transfer complete and accurate information left hundreds of thousands of borrowers with account problems that continue to plague the federal loan portfolio today,” wrote 7 congressional senators lead by Senator Warren of Massachusetts addressing growing concerns over servicer preparedness to resume repayment.
What borrowers should do now
Those who previously owed interest will have that interest capitalized, or added to the amount owed on the loans, once the forbearance period ends. Any payments made before that date, on the other hand, will be applied to accrued interest rather than principal, so paying down the accrued interest now will save you money on interest later.
If you're not sure if you'll be able to make your student loan payments by May 2nd, start saving now to see if you can.
If you know your payments will be unmanageable soon, or if your income or family size has changed in the last year, it may be time to look into income-driven repayment options.
Payments will be limited to a fraction of your income, and your payment period will be extended. Do you want to make the most of the existing safety net programs?
For more information, contact Edapt Student Services today.