BLOOMINGTON – The latest extension of the student loan payment hiatus has again delayed Hannah Horn’s first due date for the thousands of student debt she owes.
Horn, who graduated from Wesleyan University in Illinois last year, was preparing to start making payments in February. She plans to pursue graduate studies in urban planning, but was reluctant to do so without having worked for about a year to repay part of her student loans.
“I wanted to pay off as much of my student loans as possible before I racked up more loans,” Horn said.
Government officials had repeatedly called the previous extension a “final”, but on Wednesday President Joe Biden pushed back payments again, this time in May.
Student loan payment and interest will now resume on May 1, pushed back three months from the old January 31 deadline. This is the third extension of the Biden administration’s recess, which began in March 2020 and has been repeatedly extended by President Donald Trump.
Biden’s latest statement on the extension doesn’t say the May 1 deadline will be the last. He referred to the ongoing pandemic and economic recovery as reasons for the extension.
The country has seen a further rise in COVID-19 cases, with the vast majority of new cases now believed to be from the most contagious variant of omicron. The president did not explicitly refer to the outbreak in his announcement, but acknowledged that borrowers were still grappling with the impacts of the pandemic and nearly two years of economic instability.
Yet while borrowers are already bracing for the resumption of student loans this year, it is reminiscent of the biggest types of debt held in the country.
Horn, for example, left school with approximately $ 30,000 in student loan debt. This includes $ 27,000 in federal direct loans, as well as $ 3,000 in Wesleyan loans, she said.
The payment break only applies to federal loans, not to private loan providers, which includes all non-federal loans.
A national challenge
The Illinois Treasurer’s Office website says 17% of Illinois residents, or about 2 million people, have student loan debt. This includes over 150,000 people over the age of 60. In total, they hold about $ 60 billion in student debt, with an average debt of almost $ 30,000 per person.
Large student debt is something Treasurer Michael Frerichs and his office are watching, said Fernando Diaz, director of financial products. The office has set aside about $ 1 billion for student loan programs. Staff work with higher education staff and students to determine how programs can have the most impact, Diaz said.
“As we have seen over the past 18 months, this landscape is constantly changing,” he said.
Opportunities include partnering with private companies to service loans and provide refinancing and lower-than-market 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.
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As with any loan, not all student loans are repaid on time. Nationally, about 7.3% of students who started repaying in fiscal 2018 were in default by the end of fiscal 2020, according to federal student aid data. However, Brookings Institution’s Judith Scott-Clayton said in a 2018 study that up to 29% of borrowers would end up defaulting on their student loans.
Illinois Wesleyan and Illinois State both have below-average default rates at 2.4% and 3.6% for fiscal 2018, respectively. Fiscal 2018 is the latest available data because the federal government uses three-year default rates. At 11.5% for fiscal 2018, Heartland Community College is above the total national average but close to the two-year public institution average. Both ISU and IWU are below average for four-year public and four-year private schools, respectively.
Prepare to resume payments
Under the extended schedule, borrowers will resume or start receiving bills after May 1. Graduates normally have six months of abstention after graduation, which means anyone who graduated since winter 2019 has yet to make a payment.
Before May 1, borrowers should make sure their debt service agent has the correct contact information for them and review their payment plan options. Income-based repayment plans can help reduce payments, although the loan may take longer to repay under these plans.
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“After students graduate, their primary contact should be their service attendant,” 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 on studentaid.gov.
While lower payments can mean it takes longer to pay off the loan and the borrower pays more overall because of the interest, the alternatives are even worse, Cornell said.
“It’s better than hurting your credit, not making your payments and being in 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 homes later in life and delay having children.
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The treasurer’s office also has the Bright Start 529 Education Savings Program, which are specialized education savings accounts.
“We have had tremendous success in helping families save,” said Diaz.
Horn said she felt lucky that she took care to plan ahead financially. Still, she said having student loans affects her approach to long-term life decisions like marriage and having children. She’s also been careful to plan ahead for some of life’s more hidden costs, like health care.
“Seriously, it affects a lot of choices on the road,” she said.
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Contact Connor Wood at (309) 820-3240. Follow Connor on Twitter: @connorkwood