Tag Archives: repayment

What’s Up With My Student Loans?

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Federal student loans are in a bit of a state of chaos right now.  After a three year pause, interest started accruing again on September 1st, and payments are starting this month for anyone who was in repayment before the pandemic, and also for anyone who stopped attending school from March 2020 through April 2023.  That is a LOT of student loan borrowers.  All going into repayment at exactly the same time.

To keep things extra confusing, a lot of borrowers have had their loans shuffled around to a different loan servicer (the company that handles the management and collection of the debt) during the pause.  Several of the old familiar loan servicers, including Great Lakes, AES, and Navient (AKA Sallie Mae), have gotten out of the federal loan servicing business.  There are several new players in the federal loan servicing space including Maximus, Aspire, Ascendium, and bunch of other companies I hadn’t heard of before recently.  So we have new servicers at a time when millions of borrowers are entering repayment for the first time.

I’ve heard from several currently enrolled students that their in-school deferments have not yet processed for this year.  And that doesn’t surprise me at all.  The loan servicers are without question overwhelmed.  And the in-school deferments are not their top priority right now.  But I do have confidence that the servicers will eventually get these deferments processed retroactively to the start of the fall semester.  So if you are in school and receive notice that you have a payment due, what should you do?  I can’t believe I’m saying this, but you should ignore it.  The school has sent your enrollment verification.  The loan servicer has access to it.  And the deferment will eventually be processed.  If there is a mis-labeled missed payment jammed in there, there are protections in place so you will not suffer any consequences for this “missed payment.”  So, believe it or not, you should ignore it.

I’ve heard reports that wait times to get through to a loan servicer on the phone are hours long.  And nobody wants to be on hold for that long.  So what can you do to make sure everything is in order?  There are several things you can do that don’t involve calling the loan servicer.

  1. First you should make sure you know who your loan servicer is, just in case it changed during the pause.  You can always find this information at http://studentaid.gov in the “My Aid” section.
  2. If you have not yet established an online account with your loan servicer’s web portal, you should do so.  This portal should be able to provide the most up-to-date information about your student loan account.  This will be much more efficient than trying to get through to a human on the phone.
  3. If you have general questions about repayment plan options or repayment strategies, there are options outside your loan servicer.  You can reach out to the financial aid office at your school.  If you are a law school graduate, you can also get help from AccessConnex.
  4. If you have specific questions about your student loan, you may be doomed to wait on hold to talk to your loan servicer, but this should be a last resort after you try to work through options on their web portal.

This is a less than ideal time to be a student loan borrower.  The system is not working at its best.  But your school’s financial aid office will always be your ally in working through the process.

Student Loans: They’re Baaaaaack!

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The last few years have been a very weird time in the financial aid world.  At the start of the Covid-19 pandemic, the federal government put a pause on federal student loans.  All loans in the Federal Direct loan program stopped accruing interest.  And no payments were required on these loans for borrowers who were in repayment status.  At the time when this started, we all expected the pandemic to be short-lived and everything would go back to normal in short order.  But we all know that the pandemic (and the student loan pause) continued for quite a while.  Covid-19 has become an endemic and we’ve accepted that it is something we will just have to deal with going forward.  And the student loan pause extended many times.  But it has finally come to an end.

Starting September 1st, federal student loans began accruing interest again, for the first time since March 2020.  For borrowers who are in school (or in their six-month grace period following leaving school), this means that the loan servicer has started keeping track of the interest that is accruing each month, and when the loan goes into repayment that accrued interest will be added to the principal balance of the loan (this is called capitalization).  For borrowers who are already in repayment, this means that October is not only going to bring fall foliage, pumpkin spice latte, and spooky decorations.  October is going to bring a student loan payment.  For many this will be their first student loan payment ever.  For many more, this will be their first payment in several years.  This is going to take a little getting used to!

Thankfully, along with this new era of interest accrual and required payment, this fall also brings us a new income-driven repayment plan (IDR). IDRs base the amount of monthly payments on the amount the borrower is earning, instead of on the amount that was borrowed.  The Saving on a Valuable Education (SAVE) plan is replacing Revised Pay as You Earn (REPAYE), and it is without question the most favorable of the assorted income-driven payment options.  This plan boasts the following benefits:

  • The portion of the borrower’s income protected from being included in the calculation of the monthly payment is 225% of the federal poverty guideline, as opposed to the 150% offered by most other IDR plans.  This will yield the borrower a much lower monthly payment.
  • If the borrower’s monthly payment is not large enough to cover the accruing interest, the excess interest will be forgiven rather than being tacked onto the principal of the loan.  There will be no negative amortization!  Even if you only ever pay interest on the loan, the total balance due will never grow larger.  This is a game changer.  Gone are the days where a student borrows $40,000 for their education and then after years of payments find themselves owing $152,000.  The balance will never get bigger than where you started in repayment.
  • Married borrowers will have a way to remove their spouse’s income from the calculation of the monthly payment.  Borrowers will no longer have to make a choice between having the lowest monthly payment or legally wedding their soulmate.  If a borrower is married and wants to exclude their spouse’s income from the calculation, they simply need to file their federal income tax as married filing separately.

There are more changes to follow starting next summer, but the three listed above are already in place, and will have the greatest impact on law school alumni.  You can find a detailed description of the SAVE plan here, and a great description of how SAVE differs from the old REPAYE here.

Getting ready for student loan repayment after a three-and-a-half-year break will likely feel daunting.  You can find some guidelines here and here.  And your friendly neighborhood financial aid advisor is also here to provide help if you need it.

Big changes are arriving right now.  But with a little focus and a little help from available resources, this will be manageable.

 

What’s New(ish) in Student Loans

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Throughout the pandemic some interesting things have been happening in the world of student loans—some pandemic-related and others that just fell into this timing.  And if you have student loans, you really should know what is going on.

The Pause

In March 2020, when the pandemic started to hit hard in the U.S. and we learned all about lockdowns and quarantines, all federal student loans (including Direct Subsidized/Unsubsidized and Grad PLUS) were placed in a payment pause.  The idea was to make life easier for student loan borrowers while we all deal with this whole global pandemic thing.  For those in loan repayment, this made it so the required minimum payment on loans has been $0.  And the pause has had another benefit that has helped those currently in school as well as those in repayment:  during the pause the interest rates on all federal student loans have been set to 0%.  This means that no interest has been accruing on federal student loans for almost two years.  That adds up to thousands of dollars in savings for a typical law student.  The pause has been extended a couple of times as the pandemic has dragged on, and it is currently set to expire on May 1, 2022.  If there is not another extension, on May 1 loans will go back into repayment and their interest rates will reset to their original rates.  Brace yourself…it is coming.

The Loan Servicer Shuffle

When a student borrows a Federal Direct student loan, those loans are each assigned to a loan servicer contracted by the Department of Education (ED) to be in charge of managing that loan until it is repaid.  In the year 2021 three major loan servicers decided not to extend their contracts with ED and are exiting the Direct Loan servicing business.  Granite State Management and Resources is the smallest of these three.  Granite State loans will be transferred to EdFinancial, another experienced Direct Loan Servicer.  The other two servicers exiting the business are much larger and will impact a larger number of borrowers.  Navient (formerly a part of Sallie Mae) will be moving their loan portfolio to Aidvantage, which is a division of Maximus Education.  Maximus is experienced in Direct Loans as the collection agency that works on defaulted loans for ED.  Finally, FedLoan Servicing (a division of PHEAA), the servicer that handles all Public Service Loan Forgiveness loans (in addition to many others), will be transferring all of their Federal Direct Loans to MOHELA, yet another experienced Direct Loan servicer.  What this means is that if your loans are currently held by Granite State, Navient, or FedLoan Servicing, your loans are on the move.  If you have not already received notification that your loan has been transferred, that notification will be coming soon.  This does not change any of the terms of your loan.  It simply changes who you need to be in contact with regarding the loan.  Also, if you were on an income-driven payment plan and your loan has moved to a new servicer, you should contact that servicer to make sure your income-driven plan is set up in your loan’s new home.

The PSLF Limited Waiver

The Public Service Loan Forgiveness limited waiver doesn’t really impact currently enrolled students, but I know I have some alumni readers out there who can benefit.  Plus I find this whole issue pretty fascinating.  When the Public Service Loan Forgiveness (PSLF) program first began, there was a lot of chatter on Capitol Hill about how expensive the program would be, assuming that everyone who ever thought about working in public service was going to have tens of thousands of dollars in loans forgiven.  But when we finally (several years later) arrived at the point where borrowers were eligible to apply for forgiveness, almost nobody was approved.  Maybe they had the wrong kind of job.  Maybe they had the wrong kind of loan.  Maybe they were on the wrong payment plan.  There are multitude of reasons why a borrower can be denied PSLF, and this limited waiver allows a reprieve for some of those reasons.  The “wrong kind of loan” issue can be corrected retroactively with a Direct Loan Consolidation.  The wrong payment plan issue can be waived during this time.  The wrong kind of work issue, however, cannot be overlooked.  ED did a deep dive review of all the applications that were denied, and found that many of them could be approved under the terms of this waiver.  And as an extra added bonus, many borrowers who had made additional payments after they were technically eligible for forgiveness had those extra payments refunded to them.  It’s been a huge help to a lot of public servants.  But it is, indeed, temporary. This limited waiver expires on October 31, 2022.  So if you are in repayment and think you may benefit, it is important that you complete the PSLF Help Tool  before the end of October in order to make sure as many payments as possible count toward your 120 qualifying payments needed to earn forgiveness.

There’s been a lot happening behind the scenes in the world of student loans over the last two years.  I hope this helps to keep you in the know.  Questions can always be directed to your loan servicer.  Or to your friendly neighborhood law school financial aid director who always enjoys talking to students and alumni alike.