Federal student loan repayments are currently set to resume in May after an extended pause of more than a year due to the coronavirus pandemic.
However, borrowers may not be ready to start payments again and could therefore fall behind on their loans, according to a recent blog post from the Federal Reserve Bank of St. Louis.
“Severe delinquency rates for student debt could return from historic lows to previous highs in which 10% or more of debt was in default,” wrote Lowell Ricketts, data scientist for the Institute for Economic Equity at the University. bank and author of the blog post.
Resuming payments will affect many borrowers differently and put the most pressure on those with the heaviest burdens — often low-income workers and people of color, according to the blog.
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Among the Class of 2016, the average student loan balance was $42,746 one year after graduation for black students, compared to $34,622 for white students, according to data from the National Center for Economic Statistics,” wrote Ricketts. “Therefore, the resumption of student loan repayments will put more strain on the budget of black students than that of white students. »
Other student loan experts worry that restarting payments will push up delinquencies as people have gotten out of the habit of paying back their loans and now face higher inflation that squeezes budgets.
“I think we’re going to have even higher delinquency and default rates than before the pandemic,” said Betsy Mayotte, president of the Institute of Student Loan Counselors, a nonprofit organization.
What borrowers can do now
Granted, the current pause on federal student loan payments and interest may not end in May. White House Chief of Staff Ron Klain said in a recent interview that the Biden administration is reviewing the current student loan debt situation and considering extending the pause further.
Nonetheless, borrowers should prepare for payments to resume as soon as possible and use that time to rework their budgets and get in touch with their lenders. Here are four things all borrowers should do now, according to Mayotte.
- Make sure you know your loan manager: A few large loan servicers have decided not to renew their contracts with the federal government, so some borrowers may have different service than they had before the pandemic, Mayotte said. If you’re not sure if this applies to you, the easiest way to check is to log into your account at Studentaid.gov. This will tell you who handles your federal student loans.
- Open your repairer’s mail and check your mail: Many services sent reminder messages about resuming payments, which could be emails or letters, Mayotte said.
Borrowers should be sure to open all communications to ensure they don’t miss important information about payment deadlines or what to do if they want to switch payment plans, e.g. example.
- Check what your payment will be: Closer to upcoming payments, borrowers should make sure they know how much they have to pay for their loans each month, Mayotte said. And they need to make sure the payment fits their budget, as their personal financial situation may have changed drastically since the start of the pandemic.
For some, they may be able to pay more now than they were before, which is a great way to ensure you’ll pay as little money as possible for your loans over time, said Mayotte. There’s never a penalty for paying more than you’re supposed to pay monthly, she said.
- Adjusts accordingly: On the other hand, some people may not be able to afford the same payments as before the pandemic. If so, borrowers should first see what their payment would be under an income-driven repayment plan. For many, this will reduce their monthly amount due and in some cases could even be zero. That’s usually a better option than deferring loans, suspending them, or simply not paying, which will leave you delinquent, Mayotte said.
If you need to change plans, you should send the documents as soon as possible, Mayotte said. There are about 45 million student borrowers who will go into repayment at the same time, which could overwhelm the system.
“I expect longer wait times for calls or a longer period of time for paperwork,” she said.
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