It seems that your former students with student loans (i.e., borrowers) have more questions than ever. Accurate, timely information is key to helping borrowers succeed as they navigate these confusing times. Here are some important things they need to know to avoid student loan default.
Payments Have Resumed, Interest Is Accruing, and Credit Reporting is Occurring
Whether your former students are making a first-time payment on a federal student loan, or they were part of the pandemic-related pause, the information they need to know is pretty much the same.
After the pandemic-related pause on federal student loan payments, payments resumed in October 2023. Interest is also accruing again. And, if borrowers haven’t resumed making payments it’s possible their credit has been dinged. Borrowers need to check with their loan servicer to confirm their monthly payment amount, due dates, and any updates on their account.
Confirm the Name of Loan Servicer
The U.S. Department of Education (ED) has consolidated servicers, and borrowers may now be working with a different company than before.
It’s important borrowers:
- Verify their servicer by logging into studentaid.gov.
- Create an account with the servicer or update their contact information (e.g., email and mailing address) with them, if they already have an account. They want to ensure they receive important notifications and remain in contact with their servicer.
Stay on Top of Loan Servicer’s Communications
Over time, ED and loan servicers will be rolling out additional updates and guidance that will impact borrowers. They need to regularly check their:
- Email inbox (including spam).
- Student loan portal at studentaid.gov for any notifications.
- Loan servicer’s website for any updates on their payment status.
Discover Repayment Options
Although student loan borrowers are assigned the Standard repayment plan when they first begin repayment, many borrowers are unaware of the repayment plan options available to them. Some may qualify for Income-Driven Repayment (IDR) plans, which base their payment on their income and family size. These plans are designed to help meet the unique needs of individual borrowers’ financial circumstances. Switching plans can lower their monthly payment but may increase the total interest they pay. Changing repayment plans is free and can be done with their servicer (Source: studentaid.gov).
Understand Your Payment Due Date and Amount
First payments are usually due one month after a borrower’s grace period ends (often 6 months after leaving school but varies by loan type). They can check their account for the exact due date, amount, and can set-up automatic payments and possibly get a 0.25% interest reduction.
Beware of Scams and Fraudulent Companies
While student loan scams are common, they are especially rampant now given the numerous industry changes having taken place over the past few years. Borrowers should remember they never need to pay for help with their federal student loans when working with Federal Student Aid or their federal student loan servicers. However, scammers often ask for recurring monthly payments or large sums up front.
Here are some other ways to identify a student loan scam
- They promise immediate and total loan forgiveness or cancelation.
- They require immediate action on a limited-time offer.
- They ask for usernames and passwords.
(Source: studentaid.gov).
Borrowers should ensure they work with reputable student loan experts, like ED, the office of Federal Student Aid, federal student loan servicers, or partners vetted by their school, employer, or financial institution.
Many borrowers have likely seen ads or received calls or texts from companies promising to help with student loan debt. No matter what pitch these companies make, borrowers need to know this: there is nothing these companies can do for them that they can’t do for free for themselves.
Seeking advice is encouraged, even essential, for students desiring to master their personal finances. Trust is something else. Trust can be dangerous, especially if the person or company doesn’t have your student loan borrowers’ best interests at heart.
Stay Current to Avoid Consequences
Missing payments can lead to delinquency (after 30 days) and eventually default (typically after 270 days). Default can severely impact a former student’s credit and make them ineligible for additional aid or forgiveness programs.
Public Service Loan Forgiveness’ Path to Forgiveness
If a borrower is working in qualifying public service jobs (like government or nonprofit), they could be eligible for Public Service Loan Forgiveness (PSLF) (Source: studentaid.gov). They need to make sure they follow the program and best practices (e.g., recertifying their employment each year to keep their PSLF progress on track).
Know Loan Forgiveness Tax Implications
Borrowers looking forward to forgiveness after meeting certain parameters may need to consider the tax implications. While forgiveness under PSLF may be tax-free at the federal level, other forgiveness options could result in a taxable event. In other words, if their remaining loan balance is forgiven, they may have to pay taxes on the forgiven amount.
Providing Extra Support Can Help Your Former Students
Student loan servicers have been inundated with policy changes, transferred borrowers, and more. Many borrowers have had trouble reaching their student loan servicers to obtain help and accurate information. If this occurs, you have some options to further help your former students.
- Contact ED’s Federal Student Aid Information Center at 1-800-4FED-AID (1-800-433-3243) or access their live chat option on its website. To avoid the longest wait times, try connecting with them right away on a weekday morning.
- Look for organizations and nonprofits in your area that help people with student loan-related issues. For example, in New York, there’s the Education Debt Consumer Assistance Program and in Wisconsin, there’s the Student Loan Help Hotline they can call at 1-833-589-0750.
- Access free advice from The Institute of Student Loan Advisors, a nonprofit offering advice and dispute resolution assistance.
- Recommend borrowers contact a Student Loan Ombudsman if your state has one.
- Hire a trusted organization to provide trusted student loan support and default prevention services to your former students. It’s a great way to help your former students succeed in repayment, while maintaining a good rapport with them, and it will help keep your vitally important CDR level in check. Attigo by Ascendium’s default prevention solutions are a great solution to check out.
