Federal student loan forbearance ends soon

A freeze on federal student loans offered a respite for those suffering from the economic effects of the pandemic — but these loans are coming due again soon.

More than 40 million federal loan holders will have to make monthly payments again starting Oct. 1, ending a freeze on payments set back in March 2020.

Nationwide, Americans owe more than $1.7 trillion in student loan debt — more than twice the amount of credit card debt.

Before the pandemic, it was clear Americans were having trouble meeting their student debt obligations.

Loans in serious delinquency — that is, more than 90 days late — exceeded $135 billion before the freeze — a higher rate than for most kinds of debt.

The New York Fed cautioned the real number of loans gone bad likely is twice as high, as many borrowers haven’t reached the stage where they have to start making payments.

Less student debt among Iowans compared to rest of U.S.

In Iowa, borrowers typically have less student debt than in other parts of the country. The average per capita student loan debt in Iowa was more than $5,000, according to Iowa College Aid.

More than half of first-year students in Iowa take on federal student loans.

Compared to the national rate, Iowa colleges and universities often have lower rates of default than the national average of 9 percent, according to the U.S. Department of Education’s Federal Student Aid office.

At Iowa’s public universities, default rates in 2017 ranged from 3.3 percent to 3.6 percent, according to data from the U.S. Education Department.

Directors of financial aid at Iowa universities say that the challenge in resuming payments will be communicating that they are once again coming due.

Roberta Johnson, director of financial aid at Iowa State University, said there will have to be a massive communication effort on the part of loan servicers to make students aware that the freeze is ending.

“There will be some students who have gotten out of the habit of making student loan payments,” she said.

“Making sure that those individuals know that their moratorium is ending and that they need to start making payments on the loan or face repercussions as a result of that is a big piece.”

Recent graduates should check when loans are due

Kelsey Ryder, director of financial literacy at the University of Iowa, said grads who need to start paying loans again should check in with their loan service providers.

“Some of our students who just graduated last May or during the pandemic might never have made payments,” Ryder said. “So they definitely want to make sure they know who that is.”

Students receive a six-month grace period following graduation during which they are not required to pay loans while sorting out post-grad plans.

Students whose grace period ended at any time during the freeze will have to start making payments on Oct. 1 as well.

University offices of financial aid can help graduates with loans connect with their loan service provider and answer questions, but loan payments are made directly to the service provider.

Tim Bakula, director of financial aid for the University of Northern Iowa, said that UNI’s financial aid office plans to create some kind of email messaging campaign to serve as a friendly reminder.

“There are some individuals that are still struggling to either find employment or to find employment that will allow them to make payments,” Bakula said.

“Those are really the concerns that we would have as an institution — to ensure that they’re not going to end up in a default status on their loans or in collection on their loans.”

What if you can’t make payments?

For students who are coming up short on loan payments, Bakula said income-based payment plans usually are the best option.

“In terms of allowing the student to align what their current employment status is to match what their repayment would be,” he said.

“If someone is unemployed, they would be able to register for an income-based enrollment plan and likely have a zero-dollar monthly payment that would satisfy their requirements.”

With the U.S. economy still 7.6 million jobs short of its pre-pandemic levels, recent grads may be struggling to find employment to pay off their loans, or a job in the field in which they earned their degree.

ISU’s Johnson said how quickly recent graduates will be able to find employment that allows them to start paying their loans largely depends on their major and the type of career they’re seeking.

“We know in our state as well as others that there are shortage areas people are looking for employees,” she said.

“But it has to be a good match. Is that the type of job a recent college graduate wants as their career or is that a stopgap measure for them until they find that career job that they want?”

Ryder said the UI financial aid office has not yet heard many questions about the upcoming return of payments.

“I won’t be surprised if we get those questions when it does start. But we haven’t right now heard from a ton of students on that,” Ryder said.

“I think it maybe just isn’t on their minds yet because definitely when they stopped, we did get some questions.”

Bloomberg News contributed to this report.

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