Lacking clarity, student loan borrowers face dangerous consequences

Getting roughly 43 million student loan borrowers — which includes about 1.7 million in Georgia — back into repayment after the yearslong COVID-19 pause was always going to be a daunting task, said Jessica Thompson, senior vice president of The Institute for College Access & Success. But that process, she said, has been made fraught because borrowers are not getting answers. Meanwhile, the Trump administration recently proposed moving the student loan program from the U.S. Department of Education to a different federal agency, both of which have made significant cuts to their workforce.

“If I’m a borrower and I call my servicer and say, ‘Can you explain to me what’s happening?’ They can’t explain to you what’s happening because nobody can,” Thompson said. “There is nothing that is being provided to any of the stakeholders that need the information to understand what is the plan, what can I expect and when is it happening?”

Some student loan experts believe the tumult will result in more borrowers defaulting on their loans. If so, many Georgians could be on the list. The average Georgia borrower owes about $42,000. Maryland is the only state with a higher average, according to federal data.

Payment pause

As COVID-19 disrupted the country in March 2020, the first Trump administration put a temporary pause on student loan payments. It was a reprieve for the millions of borrowers who cumulatively owe some $1.6 trillion in federal student loans. But it posed a challenge for the government: How would it eventually get borrowers back to repayment?

President Joe Biden repeatedly extended the pause and later added a 12-month “on-ramp” period. While borrowers could start payments in October 2023, they wouldn’t be reported to credit bureaus for not paying. Jack Wallace, with the private lending company Yrefy, said that moratorium ended on Jan. 1 without much publicity. With borrowers unaccustomed to paying, Wallace expects many will realize this month that their credit scores have been impacted.

Death of a SAVE Plan

In 2023, Biden introduced the SAVE Plan. To lower costs for borrowers, it based monthly payments on monthly income. But it was more generous than preexisting income-based plans, in part because payments were based on a smaller portion of income and balances wouldn’t grow due to unpaid interest. Roughly 8 million people enrolled, including Caroline Adobah and some 286,000 other Georgians. The Lawrenceville physician assistant saw her monthly payment cut from $1,000 to $300. If she stayed on track with those payments for 15 years, SAVE would allow her to wipe away her $111,000 debt.

Credit: Caroline Adobah

Credit: Caroline Adobah

But the plan was short-lived. Multiple state attorneys general, including Georgia’s Chris Carr, filed lawsuits arguing SAVE was unconstitutional. It has been blocked in court since last year. While Democrats in the U.S. Senate want to protect the program, experts say it’s likely to be killed by the courts or by the Republican-controlled Congress.

“SAVE is gone,” said Betsy Mayotte, president of the Institute of Student Loan Advisors. “It’s just a matter of who buries the body.”

Forgiveness in jeopardy?

When Sara Roth made the decision to take out a loan to get a master’s in education at Georgia State University, she made the calculation expecting she would be eligible for forgiveness. Under federal law, borrowers on income-driven repayment plans can have their loans forgiven after 20 to 25 years. And the public service loan forgiveness program wipes out a borrower’s loan after they’ve spent 10 years working for the government or a qualifying nonprofit.

Credit: Sara Roth

Credit: Sara Roth

But after Trump signed an executive order limiting the public service program — the White House said employees of organizations that have engaged in “illegal” actions will not be eligible — the Doraville resident is wondering if the Public Service Loan Forgiveness program will still be an option. And amid the uncertainty, she worries that income-driven forgiveness won’t be available, either.

“Have I been working toward this forgiveness and it’s going to be pulled out from underneath me?” said Roth.

Gutting the Education Department

Adding to the uncertainty, the Trump administration terminated roughly half the Department of Education staff. And Trump proposed having the Small Business Administration, headed by former Georgia U.S. Sen. Kelly Loeffler, take over the federal student loan portfolio, even though the SBA recently announced it would fire 43% of its staff.

Credit: Jason Getz/AJC

Credit: Jason Getz/AJC

“Giving them more responsibility with less people to do it, that could present some challenges,” said Emmanual Guillory, policy expert at the American Council on Education. “If there’s going to be a transition, there’s going to be hiccups.”

According to Mike Pierce, executive director of the Student Borrower Protection Center, before the pandemic, roughly a million student loan borrowers defaulted every year. “We’re on pace for something far in excess of that,” he said. Much of that can be explained by the confusion borrowers have about when, how much and who to pay. But Pierce says strictly blaming borrower confusion denies agency to policymakers.

“They’re basically doing everything you shouldn’t do if what you want is to make sure people can afford their monthly payments and to get things back to normal,” he said.

Meanwhile, frustrated borrowers like Adobah have barely made a dent in their loans despite never missing a payment. If public service or income-based forgiveness are taken away, the mother of two expects to be paying them off until she dies.

“There’s really a sense of powerlessness,” she said. “This is just the way it is and it sucks.”