For the first time in the last two years, about 41 million Americans will begin paying down their federal loan debts on May 1 for the first time in two years.
Despite this, the clear majority of borrowers express concern about how they will be able to pay this monthly fee again in the face of current extraordinarily high levels of inflation.
According to a recent study of 23,532 student loan borrowers done by advocacy organization the Student Debt Crisis Center and Savi, a technology startup focused on student loan forgiveness, approximately 93 percent of borrowers were not prepared to resume payments in May.
According to the poll results, however, around a third of student loan debtors have already begun reducing their expenditure, even on necessities such as food, rent, and health care, in preparation for the start of repayments.
In the words of Natalia Abrams, president, and chief executive of the Student Debt Crisis Center, “our results indicate that the continuing epidemic joined with unparalleled inflation, is a huge obstacle for borrowers who, by and large, are not ready to resume payments, are struggling to meet basic needs, and are unsure of their options moving forward.”
According to Abrams, in many cases, the financial health of student loan borrowers has deteriorated over the previous two years, making it much more difficult to begin repayments on their loans. More than half of the borrowers polled lost their jobs or saw their working hours decrease during the pandemic.
Among those who were previously able to make their student loan payments comfortably, 61 percent now report having difficulty paying down their student loans or defaulting.
However, many borrowers are also anxious about the financial health of their loan servicer, in addition to concerns about inflation. Several large organizations, including Navient, PHEAA (also known as FedLoan Servicing), and Granite State, discontinued loan servicing last year, resulting in the transfer of millions of loans to new servicing companies.
It was discovered that over half of the respondents had not contacted their student loan servicer regarding payments resuming on May 1 as they should have.
According to Tobin Van Ostern, co-founder of Savi, this is the largest service transition that has ever occurred for borrowers, and millions are trying to understand what is going on. He continues by saying that “clear direction and communication from the Department of Education to borrowers is crucial.”
Many experts advise borrowers not to sit around and wait for their servicer to get in touch with them. Instead, they should double-check that their contact information is up to current and begin looking into repayment plans as soon as possible if they are concerned about their ability to afford the monthly payment.
And while some Democrats are pressing for total student debt forgiveness, it’s far from a foregone conclusion, and debtors shouldn’t necessarily bank on it going to take place before the Department of Education compels repayments to resume.
Biden administration to extend student loan payment freeze till May 1
The CARES Act, passed in March 2020, instituted a hold on federal student loan payments, which aided around 43 million borrowers during the epidemic. The freeze was extended five times, with the “final” deadline of January 31, 2022, is set as the fifth extension.
According to current plans, the Biden administration will continue the pay freeze until May 1, 2022. We recognize that many student loan borrowers face the epidemic’s effects and will require additional time before they can resume payments, President Joe Biden said in a statement released on Wednesday.
Accordingly, today my administration announced that it would extend the moratorium on federal student loan repayments for another 90 days—through May 1, 2022—to better manage the ongoing epidemic and improve our economic recovery.
There has been a total 180-degree turn in the Biden administration’s position since just last week, when White House press secretary Jen Psaki stated that there would be no further extensions of student loan deferment and that payments would start on February 1, 2022.
Since August of this year, the Biden administration has referred to the fifth delay as the “last deadline.”
According to Psaki, “we’re currently evaluating the impact of the Omicron variation, but a smooth transition back into payments is a top goal for the administration.”
“The Department of Education is already in contact with borrowers to assist them in preparing for the resumption to payments on February 1,” says the spokesperson.
However, in recent weeks, there has been growing concern about the impact that the Omicron variety will have on the economy as a whole, particularly in the developing world.
During a press conference on December 6, Senate Majority Leader Chuck Schumer used this as leverage to call on the Biden administration to “maintain that halt with the introduction of Omicron, the continuation of COVID,” as he stated.
Natalia Abrams, president of the Student Debt Disaster Center, said in a statement on Tuesday that the Omicron variant is a frightening reminder that the pandemic is still a significant worry and that Americans cannot be crushed by student debt as they bear this health and economic crisis.
To assist, the Biden administration must realize the seriousness of the situation and [use] the resources at its disposal.
However, even if the Biden administration extends the forbearance period by another 90 days, the president cautions borrowers that they must “do their share, too.”
He advised students to “take full advantage of the Department of Education’s resources to help you prepare for payments to resume; look into options to lower your payments through income-based repayment plans; investigate public service loan forgiveness, and ensure you are vaccinated and boosted when eligible.”
In addition, Fortune prepared a must-do list to assist debtors in preparing for payback. Although the list was produced before the news of the extension, it still contains essential information and comments from student loan professionals.
Inflation forcing Americans with student debt to skimp on regular needs
92 percent of fully employed student loan borrowers are afraid that growing costs will make it more difficult to finance their payments starting on May 1. Inflation and consumer debt are at all-time highs.
According to a new study of 23,532 student loan borrowers, 92 percent of those fully employed are anxious about being able to afford their payments when the current stop on payments and interest expires on May 1. The current pause on payments and interest is expiring on May 1.
As a result, one-in-three borrowers report cutting their expenditure on necessities such as food, housing, and health care in anticipation of payments to resume.
In a collaborative effort with Savi, a social impact technology firm that assists borrowers in receiving student loan forgiveness, the Student Debt Crisis Center (SDCC), the nation’s biggest student debt advocacy organization, released new findings.
The poll is the fifth episode in the Student Debt x COVID-19 campaign, which has been running for the past two years, and looks at the toll that the pandemic is continuing to have on a whopping 46 million student loan borrowers.
In addition, the poll discovered that:
- Most Black borrowers (95 percent) are not prepared to resume their payments on May 1.
- More than 90 percent of borrowers are not prepared to resume payments on May 1, and another 27 percent believe they will never be able to resume payments in the future.
- Fully employed borrowers overwhelmingly oppose the notion that the economy has recovered from the effects of the COVID-19 pandemic. 91 percent of fully employed borrowers disagree.
- After the COVID-19 pandemic started, 61 percent of respondents who could get their student loan payments were unless fighting to make payments, unable to make payments, or in default.
- More than half of borrowers claim that their student loan servicer has not contacted them to inform them that federal student loan payments would resume on May 1 as scheduled.
- Because of the COVID-19 pandemic, more than half of borrowers lost their jobs, had their hours shortened, or were furloughed.
- These findings provide significant background for understanding the other challenges student loan borrowers face. Inflation has accomplished its highest level in more than four decades.
- According to recent statistics from the New York Fed and the Federal Reserve, Americans are shouldering the largest level of household debt increase since the 2007 recession began.
More than 85 percent of survey respondents stated that they currently rely on the federal payment suspension for financial relief. Low-income and working-class borrowers are more likely to use the money they save each month from the federal payment suspension to pay for food, health care, or medicine.
“Student loan debtors have been following our stories for more than two years, and we are dismayed to report that their circumstances are worse.
It appears from our findings that the ongoing pandemic, combined with unprecedented inflation, is creating a significant obstacle for borrowers who, for the most part, are not ready to resume payments, are struggling to meet their basic needs, and are unsure of their options moving forward “Natalia Abrams, President, and CEO of the Student Debt Crisis Center expressed her thoughts.
As a result, we advocate for complete debt cancellation to rectify the damage created by this crisis, as well as an action plan to assist borrowers as they navigate the uncertain future.”
According to Tobin Van Ostern, co-founder of Savi, “the great majority of borrowers have not made a payment in more than two years.”
“Apart from the extraordinary delay, millions of borrowers are presently deciding who will process their monthly bill if payments restart – the greatest service shift that has ever taken place in the history of the financial industry.
Because both events are taking place at the same time, appropriate direction and communication from the Department of Education to borrowers is vital for success.”
Between February 1 and February 15, 2022, 23,532 respondents from all 50 states participated in the poll. The poll consisted of 54 questions, was sent out through email to the Student Debt Crisis Center fans, totaling about 2 million.
Everyone must have student loans canceled.
U.S. Rep. Alexandria Ocasio-Cortez has emerged as one of the most vocal and persistent critics of President Joe Biden’s stance on student loan cancellation—and she’s now separating herself from the president in terms of who she believes qualifies for loan cancellation.
When asked about canceling student loan debt for borrowers who attended “exclusive” private universities such as Harvard University, Yale University, and the University of Pennsylvania, Biden stated that he was opposed to doing so.
As recently as May 20, 2021, he maintained his position, as reported by the New York Times: “That you go to [the University of Pennsylvania] and pay a total of 70,000 dollars per year, and it the general public should foot the bill for that is ridiculous. I’m not sure I agree with you completely.”
When asked about the fairness of a mass debt cancellation program that would benefit both low- and high-income borrowers on Tuesday, Ocasio-Cortez slammed Biden’s rationale during a town hall she sponsored, Ocasio-Cortez slammed Biden’s reasoning.
In her words, “taking the school that someone went to college at is not a shorthand for the money of the household from which they came”
“I would caution against assuming that persons who attend Duke, Harvard, and other prestigious colleges are automatically wealthy just because they were accepted into or attended those institutions.”
Ocasio-Cortez did not mention Vice President Joe Biden’s broader debt reduction plans in her town hall.
Efforts to cancel student debt for deceived and disabled students have been stepped up by the president, while he has not yet followed through on his campaign promise to cancel up to $10,000 per borrower has not been fulfilled.
According to the Treasury Department, his debt forgiveness has totaled $15 billion, but more than 43 million debtors still owe more than $1.61 trillion in federal debt.
But Ocasio-Cortez has been advocating a plan to cancel up to $50,000 in debt per borrower, along with other Democrats such as Senate Majority Leader Chuck Schumer and Sen. Elizabeth Warren, to help struggling people with debt.
However, Biden does not feel he has the legal right to do so through an executive order, which is a source of contention.
Does everyone pass for federal student support?
Suppose you ask Ocasio-Cortez about who should ultimately be eligible for debt cancellation on Tuesday. In that case, she says that most high-income families don’t qualify for federal student loan aid and that many don’t even try to apply.
“I would argue that the concept that the extremely wealthy will gain more from student debt cancellation than the middle class is a little bit of a farce,” she remarked at a town hall meeting on Tuesday.
As Jeff Bezos says, “If you are affluent if you are a multimillionaire’s child if you are Bill Gates’ child if you are Jeff Bezos’ child, you will not be required to take out a student loan to send your children to college.”
According to Student Loan Hero, anyone can submit a federal student loan application through the Free Application for Federal Student Aid (FAFSA). There are no income restrictions or cutoffs in place.
The reason for this is that when the Federal Student Aid (FSA) office calculates your financial need, income isn’t the only criterion taken into consideration.
The costs of attending school and the presence of several siblings are taken into consideration. According to Student Loan Hero and the Federal Student Help (FSA), there is still a chance that your family will not qualify for financial aid after all of the considerations are considered.
Aside from that, Ocasio-Cortez errs on the side of granting student loan forgiveness to all students, comparing it to a stimulus check.
Many people relied on their stimulus payments to pay for necessities such as shelter and food during the first few months of the COVID-19 outbreak.
Yet others utilized the money to make charitable contributions, contribute to their retirement accounts, or stimulate the economy by purchasing products and services, according to her.
When it comes to leaning one way, Ocasio-Cortez stated, “I would rather that we tilt in the direction of being a bit too generous rather than underserving the most vulnerable individuals.”
“Is it possible that there are some persons whose loans have been forgiven who you believe should not have had their loans forgiven? It’s a possibility.”
Your new student loan servicer
It’s official: Navient is no longer in the business of servicing federal student loans, and this will take effect immediately.
The United States Department of Education authorized Maximus’ application on Wednesday to transfer loan servicing of 5.6 million Education Department-owned student loan accounts to the business, which is a federal contractor.
In late September, education loan management provider Navient announced that it would cease servicing federal loans owned by the Education Department and transfer its operations to Maximus Education Loan Services. Navient, on the other hand, will continue to operate its private student loan servicing operation.
According to Richard Cordray, Federal Student Aid’s chief operating officer, “We are confident that this decision is in the best interests of the approximately 5.6 million federal student loan borrowers who will be serviced by Maximus and will provide them with the stability and high-quality service they deserve.”
Why does the Education Department have such a high level of trust in Maximus, a company that appears to be an outsider in the world of federal student loan service? Here’s what we currently know.
Why Maximus is modifying Navient
Maximus is a government contractor with its headquarters just outside Washington, D.C. In the United States, it is most recognized for its huge health care, human services, and information technology agreements with the federal govt.
The Centers for Medicare & Medicaid Services, which the corporation supports, is a government agency. In May 2021, it was awarded a contract with a potential value of $951 million to support the Centers for Disease Control and Prevention’s COVID-19 nationwide surge response and vaccine help hotline, which is currently operational.
Even while Maximus has since concentrated its efforts on the healthcare industry, the corporation already had strong links to the Department of Education before the Navient acquisition.
Maximus has collaborated on agreements for the department’s debt management platform, collections system, and business operations, among other projects.
“Through this agreement, Maximus will be willing to apply our deep awareness of the requirements of student borrowers, as well as our industry-leading customer support, to aid the Federal Student Aid (FSA) in support the millions of student loan borrowers,” Teresa Weipert, managing partner for the U.S. federal services segment of Maximus, said in a statement on September 28.
“These suitable arrangements Maximus to pertain to our deep awareness of the requirements of student borrowers, as well as our industry-leading consumer
Furthermore, it appears that the Federal Student Aid Administration (FSA) trusts Maximus more than the former student loan servicer, Navient, which had a shady history with federal loan servicing.
Nine borrowers filed a class-action complaint against Navient in December 2020, saying that the company had improperly misallocated payments to extend the lives of potentially millions of federal student loans.
Eventually, a federal court in New Jersey determined that the borrowers could proceed with the lawsuit.
The Federal Student Aid Administration (FSA) appears less concerned now that Maximus has taken up Navient’s federal student loan account service.
According to Cordray, “our confidence in this [deal] is enhanced by the fact that Maximus will be accountable to the higher requirements for performance, openness, and accountability that FSA placed in its previous servicer contract extensions.”
How the switch will occur
Apart from stating that there would be a “smooth transition” of borrower accounts, the student loan servicers and the Federal Student Aid (FSA) have not provided any additional information on how the change will impact borrowers or how the transfer will take place.
Navient did confirm that borrowers will be transferred to Maximus’s servicing business, Advantage, before the end of the year, following “a series of mailings to borrowers.”
Navient did not provide further details. According to Navient, loans will continue to be serviced on their current servicing platform, which Fiserv owns.
‘The Federal Housing Administration, Navient, and Maximus will communicate with borrowers about how this move will impact them,’ Cordray said in a statement.
We will make this move as straightforward as possible to demonstrate our dedication to enhancing borrowers’ experiences with federal student loans.