When Catherine Bolton retired earlier this year, she entered her golden years with an obligation she’d hoped she would be done with by now: roughly $40,000 in student debt.
In the months since she left her job as an elementary school mental-health professional, Bolton, 67, has had a reprieve from monthly student loan bills, thanks to the coronavirus-era pause on student loan payments and interest. But she’s worried about having enough room in her budget if payments resume as scheduled in October — and that the payments will haunt her for the rest of her life.
“I’m going to be on a fixed, lower-income,” she said. “I drive a 26-year-old car, but it’s a model and year that’s known for running forever, so I’m grateful for that.”
Bolton is one of tens of millions of borrowers bracing for student-loan payments, interest and collections to resume on October 1.
Advocates and members of Congress, including Democratic Senators Chuck Schumer and Elizabeth Warren, are urging the Biden administration to extend the payment pause, based on concerns that the student loan system isn’t ready logistically for payments to resume and that borrowers aren’t financially prepared — a recent survey of 23,000 borrowers by Student Debt Crisis, an advocacy group, found that nine in ten borrowers say they won’t be ready to restart payments on their student loans on October 1.
Stakeholders raised these worries each of the three previous times the threat of new payments loomed. But the October deadline is the first to approach since the Biden administration, which pledged to revamp the student-loan system, has had the opportunity to govern. Advocates say borrowers shouldn’t be asked to resume payments before officials address challenges plaguing the student-loan program, including by clearing away debts owed by borrowers already entitled to forgiveness.
“During the campaign President Biden made a lot of big promises about how he’s going to fix the student-loan system,” said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. “It doesn’t make a lot of sense to turn the student-loan system back on before those fixes are there. We have a once-in-a-lifetime opportunity while the pause is in place to make those changes.”
In the past when borrowers have resumed student-loan payments after a pause due to natural disaster, new defaults spiked — a sign that borrowers weren’t aware that payments had resumed or had struggled to get into an affordable repayment program in time.
In addition to pushing for sweeping changes ahead of the end of the payment pause, stakeholders are also concerned the student loan system isn’t ready operationally for bills to resume. The October resumption of payments will involve many more borrowers than those natural disasters.
“We’re going to lose a generation of student-loan borrowers who are never going to be able to get back into the system and who are then going to have to face the devastating consequences of defaulting on their student loans,” Yu said.
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‘Why not give them the chance?’
The Biden-era Department of Education has taken steps to improve the student-loan system, including by discharging $1.5 billion in debt from borrowers who were scammed by their schools and providing assistance to disabled student-loan borrowers. Still, advocates are pressing for more changes, including mass student-debt cancellation, before payments restart.
“The Department is working on making the system better. Why not give them the chance?” Yu said.
Bolton’s story illustrates the obstacles borrowers face navigating the student-loan system that advocates say the Biden administration should ameliorate before payments resume. She’s one of the tens of thousands of borrowers who have struggled to access Public Service Loan Forgiveness, the program that allows government and some nonprofit workers to have their federal student loans discharged after 120 on-time monthly payments.
‘We’re going to lose a generation of student-loan borrowers who are never going to be able to get back into the system.’
— Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center
Since 2009, Bolton’s student-loan company has auto-debited her payment each month. Despite making payments on her loans for more than 10 years and working as a mental-health professional in a public elementary school during that period, she’s been rejected twice from PSLF on technicalities. Any payments she makes now that she’s retired won’t be counted towards relief because she’s no longer working in public service.
Bolton, who lives in Lawrence, Ks., wishes she had researched the program and its requirements earlier — “I foolishly just stuck my head in the sand, I just didn’t know how to deal with it,” she said referring to the debt —but the system is also to blame for the obstacles she’s encountered, she said.
“There wasn’t any dialogue about the fact that this existed,” when she consolidated her loans in 2009, Bolton said. Even when Bolton engaged her student loan company in recent years to help her navigate the program — including filling the application form out with a representative on the phone — Bolton received conflicting information depending on who she spoke with. “It seemed to me that I couldn’t get a straight answer,” she said.
Scammed students still waiting for relief
The challenges that public servants like Bolton face accessing relief they’ve been promised are indicative of broader problems with the student-loan system, including that borrowers are forced to navigate “overly restrictive” rules that are poorly communicated, Yu said.
“These very convoluted pathways,” mean “that borrowers must be perfect in order to get the relief that they are entitled to under law, even when they meet the spirit of what these laws were intended to do,” she added.
The Biden-era Department of Education has started digging deeper into the challenges public servants face accessing forgiveness. Secretary of Education Miguel Cardona told a Senate panel in June that the high rate at which PSLF applicants are getting rejected is “unacceptable.”
Advocates say that before the student-loan system has turned its back on borrowers who are owed discharges, including public servants, students who were scammed by their schools and borrowers who are permanently disabled.
Advocates say that before the student-loan system has turned its back on borrowers who are owed discharges, including public servants, students who were scammed by their schools and borrowers who are permanently disabled, should have their debts wiped away.
Eileen Connor, the director of litigation at Harvard Law School’s Project on Predatory Student Lending, represents thousands of former for-profit college students who have been waiting for years to have their claims for relief reviewed. Borrowers are entitled to have their federal student loans cancelled if they’ve been misled by their schools through a process called borrower defense.
But under then-Secretary of Education Betsy DeVos, the Department illegally stalled processing their claims, according to a lawsuit filed on behalf of the students by Connor’s organization. Though the Biden administration has cancelled roughly $1.5 billion in student debt held by for-profit college students who were scammed by their schools, thousands are still waiting for relief and their claims should be addressed before student loan payments resume, Connor said.
“Knowing that there are people out there who should not have their loans — or their loan obligation shouldn’t exist,” but are in jeopardy of having their wages, tax refunds or Social Security benefits garnished following unprecedented upheaval, is “very frightening,” Connor said.
“I know that it’s frightening to people like my clients,” she added.
Connor’s clients were particularly likely to be economically impacted by the pandemic. In the year leading up to March 2021, roughly one-third of the 425 clients Connor’s organization surveyed applied for unemployment benefits. Nearly half of those surveyed either worked themselves or had a family member who worked in a frontline job, like postal worker or delivery driver, that put their health at risk.
“The people who are our clients, who have these loans from predatory schools that have caused them more hurt than help, are so disproportionately affected by the pandemic,” Connor said. “That is essentially unconscionable that they would be put in jeopardy of collection again, be sent a message that it’s time to get back to normal when the Department hasn’t corrected this situation.”
Servicers ask for a plan
But it’s not just sweeping changes to the student-loan system stakeholders say need to be tackled before payments resume, they’re also worried about what appears to be the lack of a plan to tackle the logistics of turning on student loan payments for roughly 30 million borrowers.
“We’re waiting for the government to decide how it’s going to do this,” said Scott Buchanan, the executive director of the Student Loan Servicing Alliance, which represents the companies the government contracts with to manage the student-loan program. “The Department has given borrowers more time and it’s given itself more time, but it has not used that time to develop and communicate a plan — it’s frustrating to us.”
‘We’re waiting for the government to decide how it’s going to do this.’
— Scott Buchanan, executive director of the Student Loan Servicing Alliance
Without enough time to communicate with borrowers about the logistics of how payments will resume, Buchanan worries student loan companies could receive a crush of calls on Oct. 1.
“That will strain the system,” he said. “I don’t think there’s any amount of resources and staffing we could do to accommodate 30 million people all at once.”
Cardona told the Senate panel in June that the agency is “aiming to provide as much of an onramp for these borrowers as possible.” Cardona also noted that the agency is “in continuing conversations” about whether October is “the best time” to resume payments.
If history is any indication, a robust plan will be necessary to smoothly restart student-loan payments. When the system was initially shut off in March, borrowers’ calls were dropped more frequently than typical and they faced challenges getting information from servicers, according to a June Government Accountability Office report. In addition, up to 5 million borrowers had their credit scores inadvertently dinged because of a servicing error.