Resumption of obligatory student loan payments causes financial strain for several borrowers.
HOST LEILA FADEL:
With the pandemic pause on student loan repayments over, it's time for the 5 million Americans in default to start repaying their debt. And many are struggling to make these payments. NPR spoke to some concerned borrowers, including Catherine Wooten, Michael Harris, and Jay Dia Castillo.
CATHERINE WOOTEN: It's going to be hard to make ends meet.
MICHAEL HARRIS: I don't know what to do. I'm very anxious that they may begin garnishment soon.
JAY DIA CASTILLO: I would probably have to get a second job to even be able to afford the rent.
To help manage their debt, borrowers have several options. They can enroll in a loan rehabilitation program, which requires making a series of payments to demonstrate ability to pay. Successful completion can lead to the removal of the default status from credit reports and eligibility for further financial aid[1]. Alternatively, they can enroll in Income-driven repayment plans (IDRs), which adjust monthly payments based on income and family size, making payments more manageable[1].
Borrowers may also negotiate with the Education Department to set up a monthly payment plan that fits their budget, helping to avoid wage garnishment[1]. Consolidating their loans into a single loan with a lower interest rate can also potentially reduce monthly payments[1].
Communication with lenders is crucial. Borrowers should discuss their available options with their lenders or the Education Department's default resolution group to prevent further collection actions like wage garnishment, set to begin in late summer 2025[1]. Seeking advice from financial advisors or credit counselors can help borrowers explore the best strategies for managing their debt[1].
HOST MICHEL MARTIN:
TransUnion's Charlie Wise says borrowers will have to make tough decisions.
CHARLIE WISE: Consumers who are constrained are always having to make trade-offs. What can they maybe put off? Where can they economize to make things happen? And what we have typically seen is that student loans tend to fall lower in what we call the payment hierarchy compared to other types of credit products - mortgages, auto loans, credit card payments, et cetera.
If payments cannot be made, the cost will be severe. Your credit score will likely take a hit, especially for those with very good or excellent credit scores[1]. But borrowers can begin to improve their credit score by resuming payments as soon as possible[1].
As for the record-high student loan debt, Wise advises, "it really starts with resuming making payments as soon as possible. Today is the best day to start. Tomorrow is the next best day."
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[1] Enrichment Data: Various options are available to borrowers struggling to make student loan payments, including loan rehabilitation programs, Income-Driven Repayment Plans (IDRs), negotiating monthly payment plans, loan consolidation, communicating with lenders, and seeking professional advice. It's essential to manage debt to avoid severe collection measures like wage garnishment, set to begin in late summer 2025.
- To manage their personal-finance situation and avoid severe consequences, borrowers may need to consider educating themselves on options such as loan rehabilitation programs, Income-driven repayment plans (IDRs), and loan consolidation.
- As Catherine Wooten, Michael Harris, and Jay Dia Castillo have demonstrated, career-development opportunities might be necessary to afford monthly payments, as borrowers seek to improve their financial situation and repay their student loan debt.
