As borrowers are increasingly aware that their student loan payments will resume in October, she said, more are calling GreenPath for advice. Some callers want to know more about how to pick the right income-driven repayment plan; others want to review their options for dealing with their debt overall.
GreenPath has seen a 55% increase in call volume since this same time last year, she said. All those calls don’t deal with student loans; many are dealing with the burdens of high rate credit cards.
The average credit card rate has soared to 20.53%, up from 17.42% a year ago, following the Federal Reserve’s rate hike on July 26, according to the latest data from Bankrate.com.
The average student loan balance was $55,254 among GreenPath clients who enrolled in a debt management plan in May. The median — the midpoint where half owed more and half owed less — was $32,874.
Many college grads and borrowers who have college debt but no degree borrowed more money on credit cards, took out car loans and tapped into personal loans during the student loan payment pause that began at the start of the COVID-19 pandemic.
Now, Martinez-Orza said, it’s tougher to find a few hundred dollars or more a month in a budget to pay a student loan bill. Among GreenPath’s clients in May who were dealing with debt, only 27% had extra of $100 or less each month. Another 26% didn’t have any such surplus.
“Once that payment is due, that payment may not be feasible for a lot of people,” she said. GreenPath offers free student loan counseling at 855-783-1410 to review repayment options and examine the pros and cons of various income-driven repayment plans.
About 65% of student loan borrowers who took advantage of the payment pause said they have no idea how they’re going to restart making those payments in the fall, according to an online survey done in May by Big Valley for Fidelity Investments. The survey involved 2,004 respondents.
According to the survey, 67% of recent graduates with student loan debt said their student loan debt is preventing them from participating in major life milestones like saving for retirement, getting married or buying a home.
On a somewhat humorous level, the Fidelity “College Savings & Student Debt Study” noted that more than 4 in 10 surveyed would “rather clean the communal dorm shower than have their credit card statement read out loud to their entire class.”
In some cases, student loan borrowers used the payment pause as an opportunity to address other concerns.
“We estimate that the student debt payment pause immediately increased consumption, as borrowers used the new liquidity to increase borrowing on credit cards, mortgages, and auto loans rather than avoid delinquencies,” according to a working paper published in the National Bureau of Economic Research.
The payment pause led to a sharp drop in federal student loan payments — even though borrowers could have continued to pay — and an increase in credit scores, according to the study conducted by researchers out of the University of Chicago.
Outstanding student loan debt hit $1.57 trillion in the second quarter, according to The Federal Reserve Bank of New York’s Center for Microeconomic Data report issued in August. Mortgage balances hit $12.01 trillion, with auto loan balances coming in second at $1.58 trillion. Credit card debt ranked fourth at $1.03 billion.
Less than 1% of aggregate student debt was 90-plus days delinquent or in default in the second quarter, according to the Fed data, which was a small decline from the previous quarter. Reported delinquencies remain at historic lows. The payment pause — and the fact that missed payments on federal student loans will not be reported to credit bureaus until the fourth quarter in 2024 — both benefited borrowers.
Yet, some concerns are growing, especially after credit card balances grew at a fast clip in the second quarter.
“About one-in-five student loan borrowers have risk factors that suggest they could struggle when scheduled payments resume,” according to a Consumer Financial Protection Bureau blog published in June.
“Student loan borrowers who are already having difficulty with their other payment obligations are especially likely to struggle with their student loan payments if they don’t get some sort of payment relief like enrolling in an (income-drive repayment) plan,” the blog noted.
Who won’t have to start paying on their student loans? Not everyone needs to worry come October. Borrowers who are still in school still won’t have to start repayments. Borrowers who graduated in May or June won’t have to make payments until November or December, when the six-month grace period for new graduates ends.
And remember, not everyone was going to benefit from the federal student loan forgiveness package, as proposed last year. Borrowers would not have received loan forgiveness if their annual income during the pandemic was $125,000 or higher for individuals and $250,000 or higher for married couples.
For some borrowers, it’s wise to check to see whether you qualify for any targeted loan forgiveness. More than 2 million borrowers have been granted forgiveness in the last two years due to public service employment, disability, or college wrongdoing, according to the Education Department’s initial email to borrowers.
Some legal challenges have cropped up regarding specific forgiveness plans, including one involving a plan to forgive some $39 billion in federal student loan debt for some 804,000 borrowers. This plan involved a one-time fix to correct previous errors involving those who made income-driven repayment plans for years. Some borrowers who signed up for those plans faced difficulty getting credit for all of the payments they have made. So some confusion continues.
Watch out for quick-fix student loan scams Student loan forgiveness scams are lurking in the wings — and could increase as we get closer to October.
A Genesee County borrower made monthly payments to a scammer who claimed to be from a debt consolidation company. But not a dime went toward that actual loan, according to an alert by the Better Business Bureau Serving Eastern Michigan.
The student debt scam can start out with an email, letter, or phone call from someone claiming you are eligible for “student loan consolidation,” “payment reduction program,” or a similar service. Some scammers are even impersonating the Federal Student Aid department and claiming the new benefit allegedly is part of “the new 2023 guidelines.”
The scammer wants you to hand over your Social Security number, name, address and even your log-in information for StudentAid.gov. Don’t do it.
The Department of Education or your student loan servicer will never ask for your FSA ID or password, according to an alert by the Consumer Financial Protection Bureau.
A key tip from the CFPB: “Scammers sometimes unlawfully get personal information about you from your credit report. So even if a company claims to know your student loan balance or other details about your loans, they still may not be legitimate.”
Avoid pitches with false promises. The Federal Student Aid site noted some of these false claims:
“You are now eligible to receive benefits from a recent law that has passed regarding federal student loans, including total forgiveness in some circumstances. Federal student loan programs may change. Please call within 30 days of receiving this notice.”
“Your student loans may qualify for complete discharge. Enrollments are first come, first served.” In another version of a student loan scam, you might be asked to make a small upfront payment to get the ball rolling on student loan forgiveness. But no real government student loan program requires an advance processing fee. You do not have to pay a fee — or hand over your credit card number — to get help with an income-driven repayment plan.
Contact personal finance columnist Susan Tompor: stompor@freepress.com . Follow her on Twitter @ tompor .
