{"id":17344,"date":"2023-09-01T06:12:43","date_gmt":"2023-09-01T11:12:43","guid":{"rendered":"https:\/\/ustower.net\/?p=17344"},"modified":"2023-09-01T06:12:47","modified_gmt":"2023-09-01T11:12:47","slug":"student-borrowers-report-confusion-and-confusion-as-repayments-loom","status":"publish","type":"post","link":"https:\/\/ustower.net\/?p=17344","title":{"rendered":"Student borrowers report confusion and confusion as repayments loom"},"content":{"rendered":"\n

In October, more than 40 million student loan borrowers will be asked to resume monthly payments on their debts for the first time in over three years. There is a\u00a0three-month grace period\u00a0for missed payments, and a yearlong lag for other consequences of delinquency (like an adverse action on credit reports). But because interest begins to accrue again, and most people who get a bill generally pay it, the scramble to prepare has begun.
The resumption was never going to be smooth under even the most favorable circumstances. As I\u00a0noted in June, restarting 40 million financial accounts from a standing start is something no financial institution, much less the federal government, has ever tried. But in talking to several borrowers as well as counselors who have helped many more, I learned about the unique factors that have made this period particularly anxiety-ridden.
Perhaps the biggest of those factors is the Biden administration\u2019s rollout of a new repayment program, called Saving on a Valuable Education (SAVE), which\u00a0launched last week. SAVE is now one of four income-driven repayment options that borrowers can choose from, and\u00a0public messaging\u00a0insists\u00a0that it is \u201cthe most affordable repayment plan ever.\u201d
In the abstract,\u00a0it is. SAVE bases monthly payments on a percentage of income and family size, and cuts the percentage of income on undergraduate loans from 10 to 5 percent. (For graduate loans, there\u2019s a sliding scale from 5 to 10 percent, based on loan balance.) It expands the amount of discretionary income that is exempt from the calculation to 225 percent of the federal poverty line, meaning that\u00a0single borrowers making $15 an hour or less\u00a0would owe nothing, as would married borrowers in a family of four with $60,000 in annual household income. And under SAVE, unpaid interest\u00a0does not grow the balance of the loan\u00a0over time, a particular pet peeve among student debtors because interest recapitalization makes them constantly lose ground. After 20 to 25 years (10 years for those with balances under $12,000) on SAVE, the\u00a0remaining debt is forgiven, which will likely knock off\u00a0several hundred billion dollars\u00a0from loan balances.
Thus far, SAVE has worked for some borrowers, particularly for people with low incomes. But the biggest factor in monthly payments\u2014the halving of percentage of income from 10 to 5 percent\u2014doesn\u2019t take effect\u00a0until next July. This means that borrowers right now, who have been told for months that\u00a0SAVE will cut their affected income percentage in half\u00a0immediately, are actually seeing that SAVE\u00a0increases their monthly payment, in some cases by double or triple.
In part, that\u2019s because signing up for SAVE forces borrowers to recertify income for the first time since the pandemic. In those four years, many have increased their income, gotten married, and\/or had kids. That affects the calculation, and even though it\u2019s not a function of the SAVE program, this can create situations at odds with the promise of lowering payments.
Borrowers can delay income recertification into 2024, but will at some point have to take into account a blizzard of variables. How should they file taxes next year, since married borrowers filing separately don\u2019t have to include their spouse\u2019s income for SAVE? If they will soon benefit from other debt cancellation, like through the Public Service Loan Forgiveness program, should they prioritize lower monthly payments? Should they sign up for different programs for undergraduate and graduate loans? Is avoiding interest capitalization worth a higher monthly payment? Might it make sense to recertify income now to avoid interest accrual? Is their payment more expensive if they are single parents instead of being married, and what does that mean for staying in committed relationships?
\u201cI live and breathe student debt as much as anyone, and I\u2019m too confused to do this for myself,\u201d said Thomas Gokey, an organizer with the Debt Collective, which has been\u00a0collecting horror stories\u00a0from borrowers with significantly increased payments.
It\u2019s difficult for borrowers to know how these variables affect them until they go through the process, with simulators that are often clunky, inaccurate, or not really simulators at all but the actual application, which one borrower told the\u00a0Prospect\u00a0he didn\u2019t figure out until it was too late. \u201cI was clicking through the [SAVE] application, and didn\u2019t realize all along that my application was submitted,\u201d the borrower, who didn\u2019t want to give his name, told me. His payment more than quadrupled, from $250 a month to $1,200. That could have been put off until next year with recertification, but he said his servicer and the Department of Education told him that it cannot be reversed. \u201cAs you can imagine, it\u2019s just heartbreaking,\u201d he said.
On top of this, there\u2019s a time crunch: Borrowers need to act fast to get SAVE locked in before payments resume in October. That can lead to rushed and haphazard decision-making.
Finally,\u00a0transfers of millions of student loan accounts\u00a0to new private loan servicers, which have\u00a0slashed staff\u00a0and need to ramp up quickly, have led to what some borrowers believe are miscalculations and mistakes. One borrower, Melanie Neff, a pediatric palliative care social worker, said her payment under SAVE more than tripled, from $300 to $1,000 a month, even though her income hasn\u2019t significantly increased since 2019. \u201cI absolutely cannot afford paying $1,000 a month,\u201d Melanie told me. \u201cI\u2019m a social worker and don\u2019t make that kind of money.\u201d
\u201cServicers are getting the answer wrong and people don\u2019t know that it\u2019s wrong and don\u2019t know what to do about it,\u201d said Gokey, who added that the\u00a0student loan simulator\u00a0provided by the Office of Federal Student Aid struggles to map onto the idiosyncratic profiles of borrowers. Many\u00a0borrowers\u00a0have\u00a0posted\u00a0the results of the simulator, showing their payments going higher.
Some servicers even\u00a0sent borrowers statements\u00a0saying their debts were paid off in full based on the Biden administration\u2019s debt cancellation program, only to have to revoke that when the Supreme Court struck it down. Since that program was stopped almost immediately by court injunction, there\u2019s no way that servicers should have sent out payoff statements, which just added to the confusion.
This confluence of issues may not be entirely the White House\u2019s fault. Indeed, the administration has just got through\u00a0canceling $39 billion in loans\u00a0for 800,000 borrowers after fixing the mistakes of past Education Departments. But payments are resuming and errors are happening on their watch, and at a time when\u00a0young people\u2019s debts are already rising, the temptation to blame those in power will be great, especially if it\u2019s perceived that promises about slashed payments aren\u2019t being met. The\u00a0Prospect\u00a0asked the Education Department about the situation, and so far they have not responded.
\u201cThe Biden campaign says the Supreme Court screwed up everything but we\u2019ve got a solution; people will have lower payments,\u201d Gokey said. But \u201cpeople are jumping through the hoops and their payment is higher.\u201d His organization just\u00a0rolled out an online tool\u00a0that produces an individual demand letter to the Education Department asking them to cancel debts under the Higher Education Act, based on an individual situation where a\u00a091-year-old woman with $330,000 in debt\u00a0got forgiveness last year.
Below is a sample of three stories I heard directly from borrowers around the country, to give you some sense of the chaos people are dealing with as payments resume:
Mitra has a balance of $84,157 on loans associated with her time at Rutgers School of Law, where she graduated in 2008. The original principal was $57,662, and she\u2019s been paying for over a decade, which shows you the relentless power of accrued unpaid interest.
After a recent career change from law to a nonprofit university, she applied for the Public Service Loan Forgiveness program last year. This immediately moved servicing for her loan to MOHELA. It also slashed her income by about 50 percent, and because she was in an income-driven repayment plan, that cut her monthly payment to $80.69.
\u201cI had been making the payments during the payment pause, I figured making a little dent was better than nothing,\u201d Mitra said. But at the end of May, she got her regular notice from MOHELA of an upcoming withdrawal from her bank account. But the amount jumped from $80.69 to $993.99.
When she called MOHELA, \u201cthey said that\u2019s a mistake, and we\u2019ll put you in COVID forbearance,\u201d she said. That avoided the large payment. But on July 7, Mitra received a letter from MOHELA, which she shared with the\u00a0Prospect, saying her request for application into income-driven repayment (IDR) was denied. \u201cBut I\u2019m on an IDR plan,\u201d she told me. \u201cInstead of saying there was a computer glitch, they went ahead and unilaterally filed.\u201d The denial letter stated that the information in the application was missing Mitra\u2019s signature and other things, which is obvious because she never filed the application or signed it.
MOHELA told Mitra that the sudden increase was a \u201csystem error, a known error, affecting many borrowers.\u201d Despite calling repeatedly\u2014\u201cI speak to them pretty frequently,\u201d she laughed\u2014it has yet to be rectified. And with the payment pause ending, that $990 monthly payment will actually be due come October. It was even difficult for Mitra to request a refund of past payments, which she said she would need if the $990 is actually owed.
MOHELA did not respond to a request for comment on the extent of that system error and how many borrowers have been impacted.
\u201cThis is a mess,\u201d Mitra said. \u201cThe payment pause and the new regulations were, I suppose, coming from a good place. But the way they\u2019ve been implemented is completely haphazard. You don\u2019t even know what people\u2019s payments really are.\u201d
Elizabeth also got a master\u2019s in social work from the University of Washington, where she graduated in 2016. She has about $60,000 in student debt and her monthly payment before the pause, under an income-driven repayment plan called Pay As You Earn (PAYE), was around $301 a month. She works at the nonprofit Seattle Children\u2019s Hospital.
Since the last time she recertified income, Elizabeth and her partner got married and bought a home. She called her servicer, MOHELA, and ran the numbers. \u201cWhen she recalculated as married filing jointly, the cheapest option was ICR [income-contingent repayment], which was $877 a month,\u201d Elizabeth said. \u201cWith the SAVE program, I honestly blacked out after she said $1,000. It was either $1,160, $1,060, or $1,600, something with a six in it.\u201d
Elizabeth doesn\u2019t have to recertify income until September 2024 (or October\u2014there have been conflicting responses), so she stayed away from SAVE for now. Running the numbers for married filing separately, the SAVE program payment fell by around half, into the $500 range (and should be even lower when the percentage-of-income change kicks in). But now, Elizabeth has a decision to make. \u201cIs my tax return going to be better if we file separately and I\u2019m paying less in loans?\u201d she asked. \u201cWe have to make a decision on how we file taxes in six months to anticipate how that is going to affect us in a year.\u201d
Seeing patients going through her hospital and dealing with big insurance bureaucracies, Elizabeth knows how a rise in income or change in marital status can create a gap in eligibility for certain benefits. She fears that the various student debt repayment programs have opened up this gap for the middle class.
I asked Elizabeth if she could make a $1,000-plus payment right now. \u201cI feasibly could, but what would that mean for me?\u201d she replied. \u201cIt means still driving my 2002 Camry until I run it into the ground. It means my wife and I don\u2019t get to do IVF [in vitro fertilization]. I\u2019m 32, she\u2019s 35, we\u2019d love to have children but have to do IVF, that\u2019s three grand out of the gate.\u201d This is a good example of how student debt constrains life choices, and even\u00a0holds back economic growth.
This last story is unusual because Kyra is a student loan expert. She is a staff attorney with the National Consumer Law Center who previously worked on the Project on Predatory Student Lending at Harvard Law School. But she also has six-figure student loan debt from her undergrad career at Temple University and her law school days at UC Berkeley.
She was in an income-driven repayment program before the pandemic, and switched it as the payment pause began. Then, because she is enrolled in the Public Service Loan Forgiveness program, her loan was transferred to MOHELA. Like Mitra Niknam, Kyra\u2019s monthly payment suddenly increased tenfold.
As a student loan attorney, Kyra had heard about problems like miscalculated payments or enrollment in the wrong payment plan occurring during the frenzied period before resumption of payments. But this particular student borrower was the least likely in America to allow a servicer to get away with a miscalculation of that magnitude.
\u201cI filed a complaint with MOHELA, and they reiterated that the payment amount was correct, but did not explain how they had calculated that amount,\u201d Kyra told me. \u201cI reached out to the Federal Student Loan ombudsman\u2019s office for help, and MOHELA indicated that they would fix the issue.\u201d But MOHELA\u2019s idea of fixing it was asking Kyra to reapply for income-driven repayment. After she contacted the student loan ombudsman, they stepped in again, and the situation was somewhat resolved, \u201calthough, I am still enrolled in the wrong plan,\u201d Kyra said.
Kyra conceded that she could navigate the system because she was an expert and an attorney, who knew the proper calculations and who to contact when there was a problem. Many borrowers who receive a high bill aren\u2019t so well situated to respond. \u201cToo often, when servicers make mistakes, borrowers are left paying the price, often with money they couldn\u2019t afford to lose in the first place,\u201d she said.
Putting her expert hat on, Kyra said that any borrower who thinks their servicer miscalculated their payment amount should\u00a0contact the ombudsman\u2019s office, and\u00a0file a complaint\u00a0with the Consumer Financial Protection Bureau.
She added that President Biden\u2019s \u201con-ramp\u201d that delays consequences for delinquent payments is critical, \u201cso that borrowers are not forced to choose between paying for food or paying their loan bill. However, I am worried that without further auditing and tighter oversight these issues will continue even after the on-ramp expires.\u201d
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In October, more than 40 million student loan borrowers will be asked to resume monthly payments on their debts for the first time in over three years. There is a\u00a0three-month grace period\u00a0for missed payments, and a yearlong lag for other consequences of delinquency (like an adverse action on credit reports). But because interest begins to […]<\/p>\n","protected":false},"author":6,"featured_media":17345,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[2674,5521,22075,1425],"class_list":["post-17344","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-politics","tag-borrowers","tag-confusion","tag-imminent-repayment","tag-students"],"_links":{"self":[{"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts\/17344","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17344"}],"version-history":[{"count":1,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts\/17344\/revisions"}],"predecessor-version":[{"id":17346,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts\/17344\/revisions\/17346"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/media\/17345"}],"wp:attachment":[{"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17344"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17344"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17344"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}