Aug 18, 2021
Student Loan Update:
As of August 9th, 2021, the department of education has extended the pause on federal student loan payments to January 31st, 2022. The department stressed that this is the final extension, and they feel as though this definitive date will reduce the risk of delinquency and defaults once payments restart.
How will these updates impact the current student loan landscape?
Chance of Delinquency. Members of Congress argued it was unfair to let the moratorium expire at the end of September without giving borrowers ample time to prepare. So, were all previous deadlines just a front? There needs to be a better focus on how we get borrowers on track to make their loan payments. Many borrowers, whether they can afford their payments or not, stopped their recurring monthly payment. I strongly believe there is a chance we see an increase in delinquency and default next year because borrowers simply cannot afford the payment, or they just got out of the habit of paying because it wasn’t required for almost two years.
Increase of Student Loan Servicers Calling It Quits. The resignation of Pennsylvania Higher Education Assistance Authority (a.k.a. FedLoan Servicing) and Granite State Management and Resources will impact over 10 million student loan borrower accounts. These transfers would have occurred during the expiration of the previous moratorium on federal student loan payments—this would have been a hot mess.
Student Loan Servicers Will be Overwhelmed. Servicers will be overwhelmed by the number of borrowers going into repayment and requesting repayment plans and this will likely cause a backup in the system and a delay in desired payments. Also, prior transfers that have occurred between loan servicers by the Department of Education contractors are historically chaotic, with issues including lost records and missed payments. It is critical to keep track of these during the transfer process, especially if you are on an IDR or PSLF program. Take precautionary steps by downloading and retaining important documents including payment histories and correspondence, review contract information, and monitor credit reports.
Student Loan Forgiveness Still Possible? Democrats are still debating over the concept and the amount of student loan forgiveness. Progressives want forgiveness of as much $50,000 for all federal borrowers; the administration has underlined $10,000 as its target. There is currently no legislation before Congress that includes forgiveness. On July 28th, House Speaker Nancy Pelosi said in a press conference that the president doesn’t have the power to cancel student debt. “He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.” Another issue that evolves from debt forgiveness that tends to be overlooked is that debt forgiveness is typically included as taxable income, potentially increasing a borrower’s tax bill.
Make sure you are educating yourself on your repayment options. It is your responsibility to ensure you are exploring all your options. Typically, student loan servicers do not know the best repayment plan for you. They only know your income level and loan balance. There are default repayment plans that they select for you if you are unsure. With a little bit of financial education, planning, and proactiveness, you can choose what repayment plan is best, based on the eligibility of your loans.
If you want to discuss different payment plans, your monthly budget, and other circumstances influencing your ability for repayment, talk to either a Certified Student Loan Professional or a CERTIFIED FINANCIAL PLANNER™.
Financial Planning Associate
Melissa came to Narwhal in the summer of 2018 following the completion of her master’s degree in financial planning from the University of Georgia, where she also earned her bachelor’s degree in consumer economics. Her interest in the field started with learning about consumer behavior, specifically its relation with complex moneymaking decisions. Melissa recently received her CFP® Certification in January 2021. Working with a CFP® professional can help you find the path to achieving your financial goals. Your goals may evolve over the years as a result of shifts in your lifestyle or circumstances such as an inheritance, career change, marriage, house purchase , or a growing family. Melissa is here to help you through that process. When she’s not working, Melissa enjoys cycling, cooking, and spending time with her beagle and two nieces.
At Narwhal Capital Management, you’re more than just a portfolio, and it’s not all about the numbers. Let’s start with a meeting about your needs and future goals.