SCOTT DETROW, HOST:
Very soon, millions of Americans will be doing something they've never done before.
SOPHIE HERNANDEZ-SIMEONIDIS: I think I have my login information for MOHELA. Is how you pronounce it? I have no idea.
DETROW: They'll be signing into their federal student loan accounts...
HERNANDEZ-SIMEONIDIS: Let's see. Continue.
DETROW: ...To make an actual payment.
HERNANDEZ-SIMEONIDIS: Oh, God, I have so many alerts.
DETROW: That's Sophie Hernandez-Simeonidis. She's 26 years old. When she graduated from Baylor University in 2020, then-President Trump had already ordered a pause on federal student loans. It was early in the pandemic, and there were a lot of layoffs and a ton of economic uncertainty. Trump extended that pause in August. And after President Biden took office, he extended it, too, again and again. So 3 1/2 years later, Sophie still hasn't made a federal student loan payment. When she checks her balance...
HERNANDEZ-SIMEONIDIS: I have one for 3,500, 2,000...
DETROW: It stayed exactly the same.
HERNANDEZ-SIMEONIDIS: Two thousand, 5,500...
DETROW: Thirty-two thousand in total. Now the pause is ending. Student loan interest began accruing again on September 1, and payments will be due starting in October.
HERNANDEZ-SIMEONIDIS: I know it's so bad, but I do kind of do the ostrich - bury my head in the sand about it because it makes me spiral very easily.
DETROW: During the pause, tens of millions of borrowers stopped making federal student loan payments. Some used the extra money each month to pay off other debts.
LAURA BEAMER: There was a decrease in medical debts, in collection. There was increases in credit scores.
DETROW: That's Laura Beamer, who leads higher education finance research with the Jain Family Institute, a nonpartisan, left-leaning think tank. She says other borrowers found themselves with room in their budgets for new payments, like home mortgages.
BEAMER: Over the past three years, there's been a drastic increase in first-time homebuyers. We think that is definitely related to the repayment pause on top of the lowest interest rates.
DETROW: But Beamer worries that after 3 1/2 years, a lot of families have adjusted to a budget without a student loan payment. Plus, many Americans expected Biden's loan forgiveness plan would cut or eliminate their balances until the Supreme Court struck it down.
BEAMER: The rug was pulled out from under them this past summer. So it's not exactly a rosy picture for student borrowers, and that's unfortunately going to have ripple effects throughout the economy.
DETROW: In Sophie's case, after graduation, she eventually got a job - and, full disclosure, she worked as a temp at NPR until last year. Instead of paying down her federal loans, she focused on her private student loans, which have higher interest rates, less flexibility, and they were not paused. And she made a big dent. But thinking about having to pay back both balances now at the same time, it makes her...
HERNANDEZ-SIMEONIDIS: Physically ill (laughter). Like, a lot of my income now goes towards student loans - like, hundreds of dollars. So thinking about how that would, like, potentially double is really overwhelming for me.
DETROW: For our cover story today, we will walk through some new programs designed to make the return to loan repayment less overwhelming and walk through what borrowers should be doing right now to make sure they are getting the best deal. For that, I'm joined by NPR education correspondent Cory Turner. Hey.
CORY TURNER, BYLINE: Hey, Scott.
DETROW: And Carolina Rodriguez, who's the director of the Education Debt Consumer Assistance Program in New York, a state-funded nonprofit that helps residents navigate student loan repayment. Hey, Carolina.
CAROLINA RODRIGUEZ: Hello.
DETROW: I'll start with you. How busy is your office right now?
RODRIGUEZ: We are extremely busy. I want to say last week was probably the wake-up call. I think a lot of people were now seriously thinking about their student loans.
DETROW: How would you characterize the mood of borrowers right now?
RODRIGUEZ: They are concerned and stressed. We have to remember that inflation is real. So not only are we facing the restart of repayment, but we're also facing wages that have not kept up with the cost of living. So there are a lot of situations where there are literally no repayment plan options that the borrower feels that they can afford right at this moment.
DETROW: So as I said, we're going to walk through a lot of the questions that have been coming in and try to help people put together a plan. Cory, we'll get to some of the more complicated questions shortly, but let's start with the basic one. What if you are someone like Sophie, who we heard from a few moments ago. You have never had to make a payment. Like, where do you start here?
TURNER: You start at the government's website, studentaid.gov. Make sure all your contact information is up to date. If they don't know where you live - email, snail mail address - they cannot find you and bill you, but that won't stop the interest from continuing to grow and grow. While you're there, you can also figure out who your loan servicer is. And this is really important because two of the biggest servicers in the loan industry actually got out of the business during the pandemic. So millions of borrowers are going to log in and find out they have a new servicer.
Once you've done all that, I think, really, the most important thing borrowers need to figure out is what repayment plan - and there are a bunch of them - is really right for them. And I cannot recommend enough the education department's loan simulator. You can type in your income, family size, how much debt you have, and it will really outline for you the different repayment plans, how much interest you'll end up paying over the long run, and also what your monthly payment will look like, you know, starting in October.
DETROW: All right. So now we have a question. This is from Sophie, who, again, we heard from before in that interesting situation of never having had to deal with this as an adult professional.
HERNANDEZ-SIMEONIDIS: Right now I'm a freelance journalist, and my income is really all over the place. It's not super consistent. How would any sort of student loan repayment plan affect the way that I repay if I don't have consistent employment?
DETROW: So, Carolina, what do you think? How should she pick a repayment plan here when income is inconsistent?
RODRIGUEZ: Regardless of whether your income is consistent or inconsistent, you should know that usually, the federal government for income-driven repayment plans is going to use your last year's tax filing. If your income has decreased significantly, you can always provide updated income information. For a lot of new borrowers that may not have a solid job, I definitely recommend they explore the new SAVE plan. And the key about that plan is not only that they will be able to get an affordable repayment plan option, which could be as low as zero if their income is below 32,000 for a household size of one, but I think the best part is that SAVE will not allow the interest to accrue if their required payment doesn't cover it.
DETROW: So the SAVE plan - Cory, you have reported on this. You've described it as loan forgiveness in slow motion. Explain how all of this works.
TURNER: The way that works, like Carolina mentioned, is especially for low-income borrowers. If you qualify for a 20 or $30 payment or maybe even a $0 payment, not only are you not making payments, the remainder of the interest each month that your payment can't cover is being waived. But this plan also comes with the promise of loan forgiveness. So for undergraduate loans, that forgiveness comes after 20 years. Also kicking in next summer, next July, is a new promise of loan forgiveness for really low-dollar borrowers. I think about these folks generally like community college borrowers. If they borrowed less than $12,000 total, under the same plan, they can qualify for forgiveness after just 10 years. A lot of people will qualify for forgiveness. It will take a while. Again, it is slow motion. This is not the big Biden plan the court struck down. But nevertheless, this is going to help a lot of people.
DETROW: Let's go to another question from a borrower.
STEVE KALKE: My name is Steve Kalke, and I live in Houston, Texas. And my question is, why does it take so long for my loan servicer to respond or to approve my documents or to really get any answers back to me in a timely manner?
DETROW: Cory, what do you make of that?
TURNER: Oh, that is a good question. Here's the short of it. I reported back in January that the Office of Federal Student Aid, which manages the federal student loan portfolio, it got flat funded. And so it's essentially trying to do something utterly enormous and unprecedented right now - get more than 40 million borrowers back into repayment. And it's trying to do it with not a dime more of funding than it had last year. And so what you have right now are budget cuts and servicers trying very quickly to staff up, and it's just not going to be pretty. And so my advice to borrowers is do not wait until October 1 because I assume the closer we get to October 1, the more time you're going to spend on hold with your servicer. And I don't see any reason to believe it's going to get better.
DETROW: Carolina, you said at the beginning how much more demand your offices are seeing come in. Do you think servicers have the staffing they need right now?
RODRIGUEZ: They do not have the staffing. And what's another layer of concern is that they are hiring new staff, and all that staff is going through training. So my experience so far when I call is that they're providing the wrong information. But I do want to highlight something that is really important. If you're not able to reach your student loan servicer, if you're getting wrong information, you need to help us hold them accountable. And you should be filing a complaint with the FSA ombudsman. You can do that online through studentaid.gov. And that is just going to help you have a trail of paperwork and get a more timely response to your issue.
DETROW: Anything else that you think should be top of mind for somebody who may just be dealing with this for the first time this weekend as this kind of sinks in?
RODRIGUEZ: Don't be alarmed if your first invoice is high, meaning you're being asked to pay an amount that you cannot afford. Borrowers who enter repayment for the first time are placed on the 10-year standard plan. Know that you can again go to studentaid.gov and potentially enrolled in the SAVE plan, which, depending on your income, should be more affordable.
DETROW: Cory?
TURNER: So I actually want to mention one thing that won't impact newer borrowers but could be utterly life changing for older borrowers. And that is that right now behind the scenes, the Education Department is basically going into their payment histories and giving them retroactive credit for big chunks of time that didn't used to count. But now they're going to count it towards loan forgiveness under income-driven repayments rules. And that could be really life changing. I was just on a Zoom call a couple days ago with a borrower. She logged into her account. She'd been in repayment for 21 years, and her loans had disappeared overnight because of all the back credit she got as part of this what the administration is calling one-time account adjustment.
DETROW: That is NPR education correspondent Cory Turner with us. Thanks, Cory.
TURNER: You're welcome, Scott.
DETROW: And Carolina Rodriguez, who's the director of the Education Debt Consumer Assistance Program. Thank you so much.
RODRIGUEZ: Thank you.
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