The Worsening Student Loan Problem: What Can Be Done

Aug 2, 2021 | Student Loan Debt

The Worsening:

September 30, 2021 was the expiration date set for the moratorium on the collections of Federal Student loans.

Final Extension Update: On August 6, 2021, the U.S. Department of Education reported that the current federal government administration under President Biden announced a final extension of the temporary delay in student loan repayments, including interest due and collection activities.

New Federal Student Loan Collections Pause Deadline

The new final extension runs through January 31, 2022.

On February 1, 2022, federal lenders will begin requiring payments once again and are at liberty to collect on the student debts owed, including accrued interest and past due amounts. If you have a federal student loan, this gives you time to establish a plan to resume student loan payments and work out any delinquency issues with your lender.

Student Loan Interest Rate Increase

Additionally, the interest rate on these student loans then shift away from 0% interest back to the contract rate, which could be as high as 10%.

Repayment Process

What this means is for approximately 40 million student loan borrowers is that repayment status will commence. Many of these student loan borrowers will now be saddled with having to make monthly payments again and which may result in an already strained financial situation.

Expiration of Moratorium

In addition to the expiration of the moratorium, approximately 10 million Federal Student Loan borrowers will find themselves having to deal with different student loan servicers. Two major players in the student loan servicing arena, FedLoan Servicing and Granite State, have announced the termination of their contacts with the US Department of Education at the end of 2021. This will result in the transferring of approximately 10 million accounts to a new servicer, one many may never had heard of. This will, obviously, add even more confusion to the already confusing and frustrating student loan servicing system.

There will not be any help out of Washington DC nor from our current administration for several reasons. First off, there is no major consensus regarding the ability of the President to issue an executive order forgiving any amount of student loan debt, so don’t rely on a Presidential bail out.

Secondly, don’t rely on any congressional action either as there is no bipartisan agreement in sight for any amount of student loan forgiveness. There is also disagreement and a lack of consensus within the parties themselves.

Each and every student loan borrower is on their own to take affirmative action on addressing their student loan debt.

What can be done:

Start Payments and Contact Student Loan Servicer

If you are in a good financial place and can make your student loan payments, you should commence making those payments if you have not been doing so. Any payments made during the moratorium when the interest rate was 0%, went to reducing the overall balance of your loans. Of the utmost importance, circle back to your student loan servicer and update your account with them in the event that your contact information has changed.

Consider Other Repayment Options: IDR Plans

If you are not in a position to commence payments, then it is time to reexamine your repayment options. An income-based repayment plan, IDR, may be a good starting point provided your student loans are eligible. Additionally, depending on the type of Federal Student Loan as well as the amount of household income and household size, very forgiving and affordable IDR plans are available.

If you have been in an IDR program I recommend recertifying now. This will establish your monthly payment based on your household size and your current income. This will allow you to make an affordable payment, without any regard to the balance of the loans, for the next 12 months, even if your income increases.

PUBLIC SERVICE LOAN FORGIVENESS

Any student loan borrower who is presently in PSLF your servicer, FedLoan, is going to transfer you to a new servicer. This may very well cause some disruption and may result in suspension of your qualified payments. To avoid any problems, I recommend recertifying your employment now and update any change in contact information. This will ensure that the new servicer has current information and can communicate with you. I also recommend commencing your monthly payment, keeping good payment history records as well as maintaining all you W2s from every qualified employer. This will enable you to have all the necessary documentation for the loan forgiveness after 120 qualified payments are made.

More information on public service loan forgiveness and repayments

TOTAL AND PERMANENT DISABILITY TPD

If you have become disabled since the moratorium went into effect, now is a good time to apply for your Student Loan Forgiveness based on your disability. All that is required is that a medical doctor certifies that you are disabled, your disability prevents you from working, and your disability will remain for at least the next 60 months. If the Social Security Administration has deemed you disabled then you may qualify for TPD without a doctor certification provided that all requirements are met.

Disability Student Loan Forms:
Discharge Application: Total and Permanent Disability
Applicant Representative Designation: Total and Permanent Disability

The student loan world is everchanging and this information

is current as of the day of publication. Marshall & Associates is glad to answer any of your student loan questions in the Nashville area and Middle Tennessee.