Federal student loan forbearance ends soon

During the University of Iowa graduation ceremony at Kinnick Stadium in Iowa City on Sunday, May 16, 2021, a group of graduates will sit alone in a seat away from a larger crowd of graduates. (Andy Abeyta / The Gazette)

A freeze in federal student loans provided breathing space for those suffering from the economic impact of the pandemic – but those loans will soon be due again.

More than 40 million federal loan holders will have to make monthly payments again from October 1, ending the payment freeze set in March 2020.

Nationwide, Americans owe more than $ 1.7 trillion in student loans – more than twice as much as credit card debt.

Before the pandemic, it was clear that Americans were struggling to meet their student debt obligations.

Serious default – that is, more than 90 days late – exceeded $ 135 billion before freezing – a higher rate than most types of debt.

The New York Fed warned that the real number of bad loans is likely to double as many borrowers have not yet reached the stage where they need to start paying.

Less student debt among the Iowers compared to the rest of the US

Borrowers in Iowa tend to have fewer student debts than in other parts of the country. According to Iowa College Aid, the average Iowa debt per capita was more than $ 5,000.

More than half of Iowa college students take federal student loans.

Compared to the national rate, colleges and universities in Iowa often have lower failure rates than the national average of 9 percent, according to the Department of Education’s Federal Student Aid Office.

At the public universities of Iowa, the failure rates in 2017 were between 3.3 percent and 3.6 percent, according to the US Department of Education.

Grant directors at the universities of Iowa say the challenge in resuming payments is communicating that they are due again.

Roberta Johnson, director of financial aid at Iowa State University, said a massive communication effort would need to be made by loan service providers to alert students to the end of the lockdown.

“There will be some students who have made a habit of paying student loans,” she said.

“Making sure these people know that their moratorium is ending and that they need to start paying the loan or face the consequences as a result is a big deal.”

Graduates should consider when loans are due

Kelsey Ryder, director of financial literacy at the University of Iowa, said graduates with recurring loans should check with their loan service providers.

“Some of our students who graduated last May or during the pandemic may never have paid,” Ryder said. “So you definitely want to make sure you know who this is.”

Students are given a six-month grace period after graduation, during which they do not have to pay any loans while they work out their postgraduate plans.

Students whose grace period has expired at any point during the blocking must also start paying on October 1st.

University grants can help graduates with loans connect with their loan service provider and answer questions, but loan payments are made directly to the service provider.

Tim Bakula, director of financial aid at the University of Northern Iowa, said the UNI financial aid office plans to launch some kind of email campaign to serve as a friendly reminder.

“There are some people who are still struggling to either find employment or find employment that will allow them to make payments,” Bakula said.

“Those are really the concerns we would have as an institution – to make sure they don’t go into default status on their loans or withhold their loans.”

What if you can’t make payments?

For students who miss loan payments, income-based payment plans are usually the best option, Bakula said.

“In terms of allowing the student to adjust their current employment status to match their repayment,” he said.

“If someone is unemployed, they could sign up for an income-based enrollment plan and likely get a $ zero monthly payment that meets their needs.”

With the U.S. economy still 7.6 million jobs below pre-pandemic levels, graduates may struggle to find employment to pay off their loans or work in the field they graduated from.

ISU’s Johnson said how quickly graduates will be able to find employment that will allow them to pay off their loans largely depends on their major and the type of career they are pursuing.

“We know in our state as well as in other federal states that there are bottlenecks in which people are looking for employees,” she said.

“But it has to be a good game. Is this the kind of job a recent college graduate is aiming for as a career, or is it a stopgap solution for them until they find the career job they want? “

Ryder said the UI grant office hasn’t heard many questions about the upcoming repayment.

“I won’t be surprised if we get these questions at the beginning. But we haven’t heard from a lot of students about it, ”Ryder said.

“I think it might not be in her head yet because when they stopped we definitely got some questions.”

The T. Anne Cleary Walkway leads to the Pentacrest and the Old Capitol on the University of Iowa campus in Iowa City on Wednesday, March 31, 2021. (Liz Martin / The Gazette)

Graduates sit in their hats and gowns waiting for the University of Iowa Graduate Celebration to begin at Kinnick Stadium in Iowa City on Sunday, May 16, 2021. (Andy Abeyta / The Gazette)

Graduates wave to patients and staff at the University of Iowa Stead Family Children’s Hospital during the University of Iowa Graduation Celebration at Kinnick Stadium in Iowa City on Sunday, May 16, 2021. (Andy Abeyta / The Gazette)

Bloomberg News contributed to this report.

Comments: (319) 368-8827; rylee.wilson@thegazette.com

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