With the federal student loan freeze coming to an end soon, Iowa’s universities and colleges are educating their students on what the next steps are to pay back their loans.
The U.S. Department of Education suspended federal student loan payments in March 2020. Both former President Donald Trump and President Joe Biden have extended the forbearance several times as the COVID-19 pandemic raged on. Without another extension, the freeze is set to end Sept. 30.
While loan servicers are responsible for contacting graduates, the University of Northern Iowa has been working with current students and recent graduates to understand what the freeze’s end means for them, said Director of Financial Aid Tim Bakula.
“I think the freeze ending is top of mind for many people that have had their loans in this forbearance period for the last 16 months,” he said. “As a college in this, we want to help ensure our borrowers understand what their options are and help them avoid default by making appropriate decisions for themselves.”
Iowans owe $12.8 billion in student loans, while the total amount owed by Americans is more than $1.7 trillion. Iowa College Aid estimated in 2019 the average debt on graduation at Iowa’s private, not-for-profit, four-year colleges and universities was $34,199 and 74% of students graduate with some debt. At the state’s regents’ universities, it was $27,502 with 55% of graduates leaving with debt.
Time to reassess
With two-and-a-half months left before the end of the freeze, students still have time to reevaluate their plans to pay back their debt, Elizabeth Keest Sedrel of Iowa College Aid said.
“For anyone whose situation has changed or anyone who just took the default options, this is a golden opportunity to look at the options and decide what would make sense,” she said. “Whether it’s a fixed plan with the same monthly payments, a graduated plan where payments increase over time, or an income based plan, it’s a great time to reevaluate.”
Keest Sedrel said now is the time for recent graduates to check in with loan servicers and ensure they have an option that is best for them before payments begin again in October.
The University of Iowa’s Director of Financial Literacy Kelsey Ryder said students should take the time to better understand federal loans in general.
“Because they’ve been paused for so long, I definitely think it’s important for students who have and have not experienced repayment to understand the basics about loan repayment,” she said. “They need to know their loan servicers and update their contact information with the entity.”
Students who graduated during the pandemic or who are graduating some time this academic year should know whether they have a subsidized or unsubsidized loan to plan their next steps, she said.
One of the fears Bakula has is that uninformed students will default on their loans. He said it’s one of the reasons his department is working to continue updating students on the forbearance.
“The students who have not paid since the beginning of the pandemic may be more at risk of going into default simply because they’ve gotten used to not having to make a payment,” he said. “It’s critical that we get them back on track.”
Biden’s last extension of the forbearance was on his first day as president. However, the Department of Education and the House and Senate Education Committees are urging Biden to continue postponing payments.
U.S. Rep. Robert Scott, D-Virginia, and U.S. Sen. Patty Murray, D-Washington, sent a letter to Biden suggesting an extension until “early 2022.” Their plan also suggested involving “multiple proven methods of borrower contact” to ensure graduates understand their repayment dates.
Iowa’s institutions are struggling to ensure their students aren’t confused about the forbearance’s impending end. Drake University’s Director of Financial Aid Ryan Zantingh said his department has been hesitant to send out reminders in case the date changes.
“Part of the reason we haven’t been more proactive with our students is that we don’t know if it will be extended,” he said. “If the date gets pushed back again, it only adds to the uncertainty and confusion students have.”
At the University of Northern Iowa, Bakula said his office continues to update students on extensions, but it can lead to some confusion. Retracting information due to extensions has only caused more confusion for students, he said.
Ryder said the University of Iowa’s financial aid department is used to having things change frequently, but it’s difficult to inform students without knowing if there will be an extension to the freeze or not.
“Since payments depend on what students’ loan servicers decide, we don’t want to cause any extra confusion about who they pay or when or how much,” she said. “We don’t want to misinform them on dates, either.”
Alongside not knowing if the forbearance will be extended in the future, the Department of Education and loan servicers have not given a clear plan to onboard the thousands of recent graduates who will begin paying their loans in October alongside people who have been paying for years — something Bakula said he is concerned about.
“If you think about the scale of that (situation), it’s not just as easy as flipping a switch,” he said. “I think a lot of things at the federal level are still being hashed out before colleges or students get any more information, so that’ll be something to monitor over the next few weeks, too.”