Student loan repayments resume in May. How Wisconsinites Can Prepare
When the administration of former President Donald Trump announced in March 2020 that student loan payments were suspended due to the economic impact of the coronavirus, Mike Mathison and his family took full advantage of the hiatus.
The 36-year-old from Sun Prairie had paid about $ 325 a month on his remaining $ 50,000 in student loans. Until the federal repayment hiatus, paying the student loan “took priority over most things,” he said, such as buying a new car or making improvements to his family’s home.
For the past two years, Mathison has not made any payments for his loans. Instead, he and his wife decided to use the money to buy a new car, send their daughter to summer camp, and build their savings account.
“We put (the money) in savings instead and just played a waiting game,” Mathison said. “With (President Joe) Biden being elected, the hope was that some or all of that would be forgiven. And until that was resolved or the payments started again, I just felt like this money might. easily get to other places and things that we need, but I don’t want to spend it and not have it later when I have to start paying again, if that happens. “
Mathison is one of 715,800 Wisconsin residents with student loan debt, according to the Student Success Through Applied Research Lab at the University of Wisconsin-Madison.
The average Wisconsin borrower has $ 32,230 in student loan debt, for a combined total of $ 23.1 billion, according to the SSTAR Lab. But compared to other states, student loan debt in Wisconsin is relatively low. Badger State ranks 45th for average debt per borrower in the 50 states, Puerto Rico and the District of Columbia, according to the SSTAR Lab.
If you’re like Mathison and haven’t made any payments on your student loans since 2020, here are a few things to keep in mind as the repayment deadline approaches.
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How to prepare for reimbursement
On March 20, 2020, the Federal Student Aid Office announced that federal student loan payments would be suspended to help Americans who have been financially affected by the COVID-19 pandemic. During the period of the hiatus, eligible loans did not accumulate interest and collections on overdue loans were stopped.
President Joe Biden recently extended the break until May 1, citing the pandemic challenges facing student loan borrowers. The suspension was previously scheduled to expire on January 31.
RELATED: Biden extends federal student loan payment hiatus until May 1
Fox Valley-based certified financial planner Sarah Paulson suggests that those who haven’t paid off their loans take a look at their spending and plan how they’re going to manage their money once the repayment begins.
“As humans we’re really, really good at spending as much as we earn, if not more,” Paulson said. So you have to get back into that mode of ‘I’m going to have to make that payment – on average – of $ 500.’ Where’s that going to come from? We always like to think that we can just flip a switch, like , oh yeah, next month I’m not gonna buy that much from Amazon, from Target – name your guilty pleasure. But it’s a really, really hard to turn back the clock. “
Paulson also advises people to make sure their contact details and banking information are up to date with their loan departments before repayment begins.
To prepare for the reimbursement, Mike Fahey, 33, a Milwaukee resident, head coach of the Concordia University men’s lacrosse team, plans to take a few extra hours of driving for Uber. He also supplements his income as a coach for a club lacrosse program.
During the break, Fahey still had to repay a loan from a private lender, but he stopped repaying his federal loans. He used the money he saved to buy a new car, he said.
While it’s been nice to have some extra cash in his pocket over the past two years, Fahey has said he’s ready to start paying off his loans again when the time comes.
“I grew up in a middle class family,” he said. “It was always like, ingrained in my mind, you had to go to college, go to college, go to college. My family didn’t have the money to pay for a full college experience, so I knew I was going to have to take loans. ”
The upcoming repayment challenges
After more than two years of student loan default, there are bound to be problems early on in repayment, said Nick Hillman, professor of educational leadership and policy analysis at UW-Madison and director of the SSTAR Lab. .
“Stopping something is a lot different than restarting it,” Hillman said. “It can be easy to stop or suspend payments, but now we come to a point where we’re going to have to restart them and that is going to, I think, present a lot of stress tests for the student loan system.”
According to Hillman, the consensus of the policy and research communities is that student loan managers have not done enough to prepare borrowers to start repaying their loans. But service officers say they can’t plan ahead because the federal government keeps changing the repayment date, Hillman said.
As Paulson advised, borrowers will need to make sure their information is correct and up to date. But people should also be aware that their loan officers might have changed. Two main loan managers – Navient and FedLoan Servicing – announced last year that they were leaving the federal student loan administration system. More than 14.5 million borrowers now have a different loan service than they had before the pandemic, Forbes reported.
Hillman also believes that some borrowers will struggle to go from paying nothing for two years to suddenly having to pay hundreds a month. People who graduated from college in the past two years may never have made a student loan repayment. He would like the government to help people integrate into the system by putting in place progressive payment plans.
Another challenge relates to those who defaulted on their loans before the suspension of payments. There is no federal government policy to specifically help 1 in 5 borrowers who were in default, Hillman said.
“It’s very likely that the people who had the most problems – the ones who had defaulted – once you get things back on track, they could find themselves in exactly the same predicament they were before the pandemic,” Hillman said. “And if so, this is just a huge missed opportunity to really address some of the worst case scenarios in our student loan system.”
What happens with the loan forgiveness?
Currently, there is no plan for a permanent and widespread loan forgiveness in the United States.
Biden has campaigned to forgive up to $ 10,000 in debt per borrower, but he doesn’t think doing so through an executive order could stand in court. He has since said such action should come from Congress. Forgiving $ 10,000 in debt per borrower would cost $ 377 billion, USA Today reported.
The permanent loan cancellation “would be huge,” Paulson said, especially for millennials and millennials. It would give them the opportunity to focus on their future by buying a home or focusing. on retirement savings, she said.
Paulson favors cancellation of student loans but hopes it will be accompanied by a restructuring of the student loan system in the United States
“It can’t be a one-time fix,” Paulson said. “There has to be some sort of tuition adjustment or repair or, at a minimum, more financial education for those students who are going to college so that they understand what they are getting into. can’t just fix the problem that we have now. We have to get back to the root causes. How did we get here and how are we going to avoid getting here? Otherwise we’re just going to be on this hamster wheel of, ‘D ‘okay, we have to forgive more money.’ Where is it going to come from? “
Mathison said he was also in favor of canceling student loans, not only because he has loans himself, but because he believes the debt young people are struggling with keeps them from pursue other aspects of the “American dream”, such as buying a house or starting a family.
Wisconsin Student Loan Workshop
The state of Wisconsin is hosting two free online workshops to help borrowers prepare for the end of the student loan repayment hiatus.
The workshops will take place from 6 p.m. to 7:30 p.m. on January 20 and from 11:30 a.m. to 1 p.m. on January 21. Strong student loan repayment tool.
The workshops are organized by the State Department of Financial Institutions and the Department of Agriculture, Trade and Consumer Protection.
To register for the January 20 workshop, click here.
To register for the January 21 workshop, click here.
Student loan borrowers can find more free repayment resources at LookForwardWI.gov.
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Contact Natalie Brophy at (715) 216-5452 or [email protected] Follow her on twitter @brophy_natalie.
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