Student Loan Questions and Answers amid Uncertainty
Defaulted student loans went into repayment May 5. With more legislation pending and questions mounting, here’s some important information current and soon-to-be payers need to know
The grace period for borrowers who defaulted on their federal student loans ended Monday, May 5. Here’s what you need to know about student loans right now, from involuntary collections to income-driven repayment plans. Photo via iStock/Pla2na
Student Loan Questions and Answers amid Uncertainty
The government began collecting on defaulted student loans May 5. With more legislation pending and questions mounting, here’s some important information current and soon-to-be payers need to know
The collection on defaulted federal student loans has officially resumed.
While repayment on federal loans resumed in October 2023, at the time the Biden administration provided some protections for borrowers who were behind on their payments. That grace period ended on May 5, marking the conclusion of student loan relief efforts that President Trump and then President Biden enacted in response to the COVID-19 pandemic.
Meanwhile, executive orders and proposed legislation regarding student loans have caused major confusion for borrowers in recent months about what options remain for repaying their loans.
To help get the answers to commonly-asked questions about student loans and repayment, BU Today consulted Boston University Financial Assistance and Federal Relations and the BU Medical Campus Student Financial Services.
Questions and answers
What exactly happened on May 5?
The government began collecting on defaulted federal student loans. This impacts an estimated five million borrowers who are in default, a designation given when a borrower goes at least 270 days without paying and without making prior arrangements with their loan servicer, such as forbearance, deferment, or enrolling in a new repayment plan.
Prior to May 5, borrowers who had defaulted on their loans weren’t subject to some of the penalties for missing payments. Now, some of those borrowers may find themselves experiencing what’s called involuntary collections, when the government collects loan payments through methods like garnishing a borrower’s wages or keeping their tax refund. Borrowers in default should have been contacted by the Federal Student Aid Office in the past weeks with more information and options for how to proceed.
What are the penalties associated with being in default?
In addition to involuntary collections, being in default can negatively impact a borrower’s credit score, which can impact, for example, your ability to take out a car loan or buy a house or get a new credit card.
How do you get out of default? Or if you’re worried about defaulting, how do you lower your monthly payments?
There are two main options for getting out of default: rehabilitating your loans and consolidating your loans. Find more information about those options here.
If you haven’t defaulted, but you’re worried about your ability to pay, consider enrolling in an income-driven repayment (IDR) plan, which sets your payments proportionate to your income and family size. If your income meets a certain threshold, such as if you’re unemployed or only able to work part-time, your payments could be calculated as zero. A $0 IDR payment still counts as an on-time payment and will keep your loans out of default.
Another option is to apply for deferment or forbearance, both of which pause payments under certain circumstances. But it’s important to note that interest will still accrue during forbearance, meaning you will end up owing more over time. Interest will not accrue for some loans during deferment. Learn more about forbearance and deferment here.
Speaking of IDR plans: what is the status of Saving on a Valuable Education (SAVE) plans and other IDR plans?
The Biden administration introduced the SAVE plan, an IDR plan that made payments more affordable for enrollees. However, it has long been tied up in the courts and is currently frozen. Borrowers enrolled in, or who applied for, the SAVE plan are in general forbearance for the time being.
Elements of different IDR plans are also under debate at the moment. But for now, the applications for three plans are back up and running:
- The Pay As You Earn (PAYE) plan, where your payments are approximately equal to 10 percent of your discretionary income (divided by 12) and never more than what you would pay under the 10-year Standard Repayment Plan.
- The Income-Based Repayment (IBR) plan, where your payments are approximately equal to 10 or 15 percent—depending on the date you borrowed—of your discretionary income (divided by 12).
- The Income-Contingent Repayment (ICR) plan, where your payments are the lesser of either 20 percent of your discretionary income or how much you’d pay on a 12-year fixed repayment plan, adjusted to your income. In some cases, your payment can be higher than what you would pay under the 10-year Standard Repayment Plan.
Find more information about qualifying for these plans and how to apply for them here.
What is the status of the Public Service Loan Forgiveness (PSLF) program?
The PSLF program, which offers loan forgiveness for employees in public-service fields after 120 payments, remains unchanged for now. An executive order called for narrowing the eligibility for the program, but no new regulations have been issued.
What is the status of the Department of Education? Is it still in charge of student loans?
A March executive order called for Education Secretary Linda McMahon to “take all necessary steps” to dismantle the Department of Education (ED). However, the department can only be abolished by an act of Congress—and that hasn’t happened. But there have been changes: so far, ED has canceled grants and contracts and reduced its staff levels by 50 percent.
Proposals to move student loan collections to the Department of the Treasury or the Small Business Administration have yet to come to fruition. For now, the Department of Education is still in charge of student loans.
What are a few of the more important things graduates need to know about their loans?
Graduates have a six-month grace period before they have to start repaying their loans. All graduates are required to complete loan exit counseling.
Before those six months are up, it’s helpful to know your loan basics: how much you owe; what the interest rates on your loans are; who your loan servicer is; what repayment plan you’re entering; and what your estimated monthly payments will be.
What resources are available at BU to help students figure out loan repayment?
BU Financial Aid and the BU Medical Campus Student Financial Services both have information and resources on their websites regarding student loans, including these strategy sessions.
Anyone with a BU email address can also make an account with Kindros, a free money-management and financial-education platform that helps users figure out their personal finances, including repaying student loans. Charles River Campus students can make an account here; Medical Campus students can make an account here.
How do I avoid scams?
A reminder from Federal Student Aid. Photo courtesy of Federal Student Aid
Scams claiming to help borrowers pay down their loans, or pretending to be a loan servicer to steal your information, are common. If you’re being contacted about federal loan assistance by an entity that isn’t your servicer, the Department of Education, or Federal Student Aid—or if you’ve defaulted on your loans, the Default Resolution Group—don’t provide information or money until you can verify that they’re legitimate at StudentAid.gov. Remember that legitimate entities will never ask you for a username or password over text or email. Other common signs of a scam include claims of limited time offers, or pressure to act immediately.
Learn more about the signs of a scam, and how to protect yourself from bad actors, here.
How do I check on the status of my loans?
You can find details about your loans, including the repayment status, your servicer (which may have changed), and how much you owe, on StudentAid.gov.
Comments & Discussion
Boston University moderates comments to facilitate an informed, substantive, civil conversation. Abusive, profane, self-promotional, misleading, incoherent or off-topic comments will be rejected. Moderators are staffed during regular business hours (EST) and can only accept comments written in English. Statistics or facts must include a citation or a link to the citation.