BLOOMINGTON — The latest extension on the student loan payment pause has again delayed Hannah Horn’s first due date for the thousands she has in student debt.
Horn, who graduated from Illinois Wesleyan University last year, had been getting ready to start making payments in February. She plans to go on to graduate school in urban planning, but was hesitant to do so without having worked for a year or so to pay off some of her student loans.
“I wanted to pay off as much of my student loans as possible before I accrue more loans,” Horn said.
Government officials had repeatedly called the previous extension “final,” but on Wednesday, President Joe Biden pushed payments off again, this time to May.
Student loan payment and interest will now resume May 1, bumped three months from the former deadline of Jan. 31. This is the Biden administration’s third extension of the pause, which started in March 2020 and was extended multiple times by President Donald Trump.
Biden’s latest statement on the extension does not say the May 1 deadline will be the final one. It referenced the ongoing pandemic and economic recovery as reasons for the extension.
The country has been seeing yet another surge in COVID-19 cases, with the vast majority of new cases now believed to be from the more contagious omicron variant. The president did not explicitly reference the surge in his announcement, but did acknowledge borrowers are still dealing with impacts of the pandemic and almost two years of economic instability.
Still, with borrowers already preparing for the resumption of student loans this year, it’s been a reminder of the largest types of debt held in the country.
Horn, for example, left school with around $30,000 in debt from student loans. That includes $27,000 in federal direct loans, along with $3,000 in loans from Wesleyan, she said.
The payment pause only applies to federal loans, not to private loan providers, which includes all loans not from the federal government.
A national challenge
The Illinois treasurer’s office website says 17% of Illinois residents, equivalent to around 2 million people, have student loan debt. That includes more than 150,000 people older than 60. Altogether they hold around $60 billion in student loan debt, with average debt of almost $30,000 per person.
The large amount of student debt is something Treasurer Michael Frerichs and his office are watching, said Chief Financial Product Officer Fernando Diaz. The office has around $1 billion set aside for student loan programs. Staff are working with higher education staff and students to determine how programs can have the most impact, Diaz said.
“As we witnessed over the last 18 months, that landscape has been ever-evolving,” he said.
Possibilities include partnering with private companies to service loans and providing refinancing and lower-than-market-rate loans for students, including current students. The goal is not to compete with federal loans, which already have lower interest rates than most private loans, Diaz said.
As with any loan, not every student loan gets paid off on time. Nationwide, around 7.3% of students who started repayments in fiscal year 2018 had defaulted by the end of fiscal year 2020, according to federal student aid data. However, the Brookings Institution’s Judith Scott-Clayton said in a 2018 study that as many as 29% of borrowers would eventually default on student loans.
Illinois Wesleyan and Illinois State both have below-average default rates, at 2.4% and 3.6% for fiscal year 2018, respectively. Fiscal year 2018 is the latest data available because the federal government uses three-year default rates. At 11.5% for FY2018, Heartland Community College is above the national total average but near the average for public two-year institutions. ISU and IWU are both below average for public four-year and private four-year schools, respectively.
Preparing to resume payments
Under the extended schedule, borrowers will resume or begin receiving bills after May 1. Graduates normally have six months of forbearance after they graduate, meaning anyone who has graduated since winter 2019 has not yet made a payment.
Before May 1, borrowers should make sure their debt servicer has the correct contact information for them and look through their payment plan options. Income-based repayment plans can help keep payments lower, though the loan may take longer to pay off under those plans.
“Once students graduate, their main contact should be their servicer,” said Michelle Cornell, senior assistant director of financial aid at ISU.
Students can see their repayment plan options and how each breaks down for them at studentaid.gov.
While lower payments may mean it takes longer to pay off the loan, and that the borrower pays more overall due to interest, the alternatives are even worse, Cornell said.
“It’s better than hurting your credit, not making your payments and going into default,” she said.
Economic purchasing power increases if borrowers are less burdened with student debt, which in turn helps the state’s economy, Diaz said. People with student loans tend to buy houses later in life and put off having children.
The treasurer’s office also has the Bright Start 529 college savings program, which are specialized educational savings accounts.
“We’ve had tremendous success in helping families save,” Diaz said.
Horn said she felt lucky that she was careful to plan ahead financially. Still, she said having student loans does affect her approach to long-term life decisions like marriage and having children. She was also careful to plan ahead for some of the more hidden costs in life, like health care.
“Seriously, it affects a lot of choices down the road,” she said.
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Contact Connor Wood at (309)820-3240. Follow Connor on Twitter: @connorkwood
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December 25, 2021 at 11:42AM