Millions of student loan borrowers will be in for a rude awakening in a few months.
Since student loan payments restarted last fall, there’s been a temporary safety net in place to shield Americans from the fallout of missed or partial payments. But when this grace period expires in September, those unprepared or unable to resume their payments will face a drop in credit scores, docked wages and lost benefits.
Even if you or your children are among those with student loans, you might not have seen this coming. Because of the Biden administration’s lack of clarity surrounding student loans, families have been left in the dark and are now scrambling for answers, lacking guidance from those who created this policy mess in the first place.
As a parent, watching this unfold is frustrating. The Biden administration has left our kids to navigate a confusing landscape with little assistance, essentially setting them up for failure.
After student loan payments restarted in October, nearly 40% of borrowers had not made a single payment by mid-November. Those withholding payments might have done so believing President Joe Biden’s now-overturned loan forgiveness plan would come to their rescue.
Inflation is still bad.It’s both Trump and Biden’s fault. Who will fix it?
Supreme Court struck down Biden’s loan forgiveness plan
Last year, the Supreme Court decisively rejected Biden’s blanket student loan forgiveness plan in the case of Biden v. Nebraska. Unsurprisingly, the court found that the administration had overstepped its authority, ruling that the secretary of Education can’t “rewrite” existing law “from the ground up.”
These changes require congressional approval.
Despite the ruling, Biden continued to tout his intentions to implement loan forgiveness, adding to the confusion and unintentionally encouraging borrowers to withhold payments. After all, if the entire outstanding balance of your loan will be forgiven eventually, why struggle to make the monthly payments now?
This week, Biden gave a preview of his latest loan forgiveness scheme, one that could erase or reduce debt for millions of Americans but also would once again attempt to bypass Congress.
It seems as though the president falsely believes he had the power to sidestep the law and implement loan forgiveness around the courts. In so doing, he has misled millions of students, parents and borrowers into believing they would never have to make another payment.
An entitled generation:Gen Z wants student loan forgiveness without any accountability. It doesn’t work that way.
Making matters worse, the Biden administration has yet to clearly communicate the consequences of defaulting on student loans.
Missing student loan payments can have serious consequences
For starters, missing payments can significantly damage borrowers’ credit scores, making it more challenging to get credit cards, car loans or even rent an apartment. Rebuilding credit after these setbacks can take years.
Borrowers who miss payments and default on their student loans are hit with the full balance and accrued interest all at once. Defaulters also lose access to future federal student aid and risk having their paychecks and tax refunds taken away.
On top of that, they could end up dealing with legal issues and collection agencies, which add more costs and fees. In addition to all of these consequences, defaulting might prevent individuals from buying or selling real estate, locking them out of key financial milestones.
These scenarios would not only be a personal catastrophe for individual borrowers, but also significantly threaten our economy as a whole.
As parents, we do everything we can to prepare our children for a future on solid financial ground, but the mixed messages and lack of clear guidance from the Biden administration are making this difficult task even harder. It’s not just about avoiding default; it’s about ensuring our children have the tools and knowledge to manage their finances responsibly in the long term.
The Biden administration must offer clarity, support and actionable advice to borrowers as we approach the end of this grace period. The financial future of our children, and the economic future of our nation, depend on it.
Nicole Neily is founder and president ofParents Defending Education.
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