While the interest-free pause on student loan payments was extended through January 31, 2022, this move only changes the timing, not the challenges that lie ahead. Inevitably, tens of millions of Americans will be responsible for restarting their paused monthly student loan payments. Borrowers who have been kept out of delinquency and default since the CARES Act was originally passed in March will find the clock ticking again.
How this impacts your school
Confusion about payment terms and a potential lack of income due to high unemployment rates and ongoing struggles with the pandemic mean many borrowers may find themselves behind in their payments or on the verge of default. Those consequences ultimately impact your school’s cohort default rate. Additionally, the volume of calls and requests you receive during this time is likely to increase substantially, putting a strain on your in-house team.
Borrower survey results
Part of the challenge is the level of confusion around this issue. Recent surveys conducted by The Pew Charitable Trust highlight a few key learnings about affected borrowers’ awareness of the CARES Act and what it means for them.
More than 90% of the 42 million federal student loan borrowers had at least one loan eligible for the repayment suspension. According to the Pew survey, 81% of eligible borrowers knew about the opportunity to “pause” repayments, but only 67% believed that the suspension applied to them. This points to the strong possibility that many borrowers either do not know the source of their student loan, or how to obtain important information about their loans from their servicer.
Another question in the survey, which was conducted in late August and early September, asked participating borrowers how difficult it would be to afford payments if they resumed in the next month. Nearly 6 in 10 (58%) borrowers said it would be somewhat or very difficult to afford payments.
How you can help
These borrowers who report they expect making payments will be a struggle will need help identifying and enrolling in appropriate options, such as income-driven repayment (IDR) plans. Many may already be enrolled in IDR plans and will have questions about how the CARES Act pause has affected their current plan.
It is worth noting that required borrower reporting data such as income is determined by tax information and must be recertified each year. In the wake of millions of lost jobs and income volatility, prior year tax data is likely to be an inaccurate reflection of many borrowers’ current income. This will no doubt contribute to a climate of borrower uncertainty in the months ahead.
Get ready now
When payments resume January 31, 2022, borrowers will be simultaneously navigating uncertainty, financial challenges, and a highly confusing repayment system. Loan servicers should be prepared to field an unprecedented number of inquiries. If only 22% of eligible federal borrowers contact their loan servicer, that number is more than 9 million people.
The implications of this scenario are clear. Loan servicers and university loan counseling partners should begin outreach efforts now, with an emphasis on providing targeted assistance to troubled or at risk borrowers. In addition, many servicers’ operating centers have faced staffing challenges during the pandemic. In order to avoid additional confusion, they will need to be appropriately staffed.
The Pew survey results highlight the importance of identifying borrowers who are likely to struggle and providing targeted assistance before the period of paused payments ends. It’s important to continue to expand targeted outreach and measure the outcomes.
PTI can help
If your school is searching for ways to identify at-risk borrowers, organize and streamline borrower communication efforts, and manage the expected influx of requests, PTI offers a range of solutions backed by an experienced team. Call (657) 232-4353 or email info@prioritytech.com for a free consultation or more information.