Federal student loan borrowers prepare to resume repaying their loans
MICHEL MARTIN, BYLINE: Tens of millions of Americans are right now getting ready to do something they have not had to do in more than three years - pay their federal student loans. But a lot has changed, both for borrowers and for the system itself, and there's a lot of confusion out there. A few weeks ago, we asked you to send us your questions. And as promised, NPR's Cory Turner, our student loan human decoder ring, is here to answer as many as he can. Welcome. Thank you for joining us.
CORY TURNER, BYLINE: Thank you, Michel.
MARTIN: So let me start with the roughly 7 million borrowers who are new enough that they have never had to make a payment and may have some pretty basic questions. Let's listen.
ALEX RAMOS: Hi. My name is Alex Ramos. I'm from the Bay Area in California. My question is, what are the different repayment plans, and how do I apply for them?
TURNER: All right, Alex, do you want to pay your loan off quickly with as little interest as possible over the long run, or is your top priority a low monthly payment? Every borrower out there needs to ask themselves this question. That's because the standard and graduated plans lock you into a 10-year window with payments that may be pretty high and inflexible. And then there are income-driven repayment plans, including the newest one - it's called SAVE - that do a really good job of making sure if you don't earn very much, you won't pay very much. SAVE also waives any monthly interest your payment doesn't cover and offers loan forgiveness after a certain amount of time.
Michel, I recommend that borrowers go to studentaid.gov, where they can type in their income and family size and their other details into this loan simulator and see pretty clearly what their monthly payments and overall interest is going to be across all of their different repayment options.
MARTIN: You know what? I'm still a little confused because, Cory, I've heard your reporting on borrowers who maybe just enrolled in the SAVE program, but they are already getting their loans forgiven. So what's happening there?
TURNER: So behind the scenes right now, the Biden administration is doing what it's calling a one-time account adjustment. And what that means is they're going back through everyone's payment histories, no matter the loans they have or the repayment plans they were on at one point. They're now counting this time towards that promise of loan forgiveness. So what we're seeing now and are going to continue to see in the coming months is undergrad borrowers, especially, who have been in the system for 20 years or more - their debts have started disappearing.
I saw this firsthand. I was talking with a borrower named Nikki Miller as she was logging into her student loan account.
NIKKI MILLER: So the page is different.
TURNER: So you're just looking now, and your loans are gone?
MILLER: They're forgiven.
TURNER: I guess you don't have any more questions.
MILLER: I don't. I was wondering why I couldn't get in, too. My loan balance is zero.
TURNER: Michel, I should say for newer borrowers, this one-time account adjustment could still help them as long as they sign up for an income-driven repayment plan, and that includes the new SAVE plan.
I also want to say one more word of warning for borrowers with old FFEL loans or Perkins loans. They can qualify for this account adjustment, but they have to consolidate their loans into a Federal Direct Loan by the end of this year.
MARTIN: Approximately 7 million borrowers have loans in default, and we heard from some of them. And they told us they want to use this moment to reset and hopefully get back on track.
JUAN CARLOS MORENO: My name is Juan Carlos Moreno. I live in Birmingham, Ala. I have a bunch of student loan debt, and I've been in default now for several years. And I want to address it, and I just don't know where to start or if that's even possible.
TURNER: All right. Well, Juan Carlos, it is totally possible. You know, lots of borrowers don't realize until they're in default that it can be just as punishing as actual loan payments because the government can garnish your wages and claw back your tax refund and even your Social Security. The good news, though, is that getting out of default is actually easier now than it used to be because of this new program. It's called Fresh Start. A good place to start is to go to myeddebt.ed.gov. You can sign up for the new SAVE repayment plan, which should keep your monthly payments reasonable. Once you do that, ED is also going to remove the record of default from your credit report. And I should say, once they get out of default, they actually qualify for that one-time account adjustment. But they can't qualify as long as they're in default.
MARTIN: Well, there's some hope there. OK, so before we let you go, we've heard from a bunch of worried borrowers who have what are called Parent PLUS Loans.
NANCY KIEHL: My name is Nancy Kiehl. I live in Huron, Ohio. And I would like to know why have Parent PLUS Loans been left out of the new changes made to student loan borrowers? I will qualify for loan forgiveness when I'm 84 years old.
TURNER: Nancy, thank you for that question. Technically, Nancy's right. Parent PLUS borrowers do not qualify for the new SAVE repayment plan. But there is a loophole that the Education Department and loan servicers are not going to tell borrowers about. If these Parent PLUS borrowers break up their loans and consolidate them into two new separate Federal Direct Loans and then, Michel, consolidate those loans, the system no longer realizes that they began as Parent PLUS Loans. And so this new loan will qualify for the more flexible repayment plan, which will also allow for a much lower monthly payment. It is called the double consolidation loophole. Google it.
MARTIN: So, Cory, you've been reporting since January about fears that the student loan servicers are not ready for this onslaught of borrowers, and we heard similar fears from borrowers. And given your past reporting, what about it?
TURNER: Yeah. I mean, I was just looking at unpublished federal data showing multiple servicers have had call wait times so long that more than half of borrowers gave up before getting through on the phone. This is happening, at least in part, because Congress didn't give the Education Department or its servicers any extra money to do all of this work. So at a time when servicers could be dealing with, you know, 10 times the number of borrowers they're used to, they're being told to cut hours, cut costs - all of which is to say, for borrowers out there, the more you can do online on your own without having to get on the phone, the better off you'll be.
MARTIN: That is NPR education correspondent Cory Turner. Cory, thank you so much for this in-depth reporting, you know, and your deep concern and willingness to listen and actually answer people's questions.
TURNER: Well, thanks for having me, Michel. And thanks to all the borrowers out there who sent in their questions.
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