A group of graduates sit alone in a seating section away from a larger crowd of graduates during the University of Iowa’s graduation celebration at Kinnick Stadium in Iowa City on Sunday, May 16, 2021 (Andy Abeyta / The Gazette)
A freeze on federal student loans has provided respite for those suffering the economic effects of the pandemic – but these loans are coming due soon.
More than 40 million federal loan holders will have to make monthly payments again starting October 1, ending the payment freeze that was rolled back in March 2020.
Across the country, Americans owe more than $ 1.7 trillion in student loan debt, more than double the amount of credit card debt.
Before the pandemic, it was clear that Americans were struggling to honor their student debts.
Loans in arrears – that is, more than 90 days late – topped $ 135 billion before the freeze, a higher rate than most types of debt.
The New York Fed has warned that the actual number of loans gone bad is likely twice as high as many borrowers haven’t reached the stage where they need to start making payments.
Less student debt among Iowans compared to the rest of the United States
In Iowa, borrowers generally have less student debt than in other parts of the country. Average student debt per capita in Iowa was over $ 5,000, according to Iowa College Aid.
More than half of Iowa’s freshmen take out federal student loans.
Compared to the national rate, colleges and universities in Iowa often have lower default rates than the national average of 9 percent, according to the US Department of Education’s federal student aid office.
At public universities in Iowa, default rates in 2017 ranged from 3.3% to 3.6%, according to data from the US Department of Education.
Iowa university financial aid directors say the challenge of resuming payments will be communicating that they are coming due again.
Roberta Johnson, director of financial aid at Iowa State University, said it will take a massive communication effort from loan officers to let students know when the freeze is over.
“There will be students who have lost the habit of repaying their student loans,” she said.
“Making sure these people know that their moratorium is ending and that they have to start paying off the loan or face repercussions as a result of it is a big chunk. “
New Graduates Should Check Loan Due Date
Kelsey Ryder, director of financial literacy at the University of Iowa, said graduates who need to start paying off their loans again should check with their loan service providers.
“Some of our students who just graduated last May or during the pandemic may never have made any payments,” Ryder said. “So they really want to make sure they know who it is.”
Students are granted a six-month grace period after graduation, during which they are not required to pay off loans while sorting out their graduate plans.
Students whose grace period ended anytime during the freeze will also need to start making payments on October 1.
University financial aid offices 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 UNI’s financial aid office is planning to create some sort of email campaign to serve as a friendly reminder.
“Some people still have a hard time finding a job or finding a job that will allow them to make payments,” Bakula said.
“These are really the concerns that we would have as an institution – to make sure they don’t end up in default on their loans or in collections on their loans.”
What if you can’t make payments?
For students who fail to repay their loans, Bakula said income-based payment plans are usually the best option.
“In terms of allowing the student to align their current employment status with what their reimbursement would be,” he said.
“If someone is unemployed, they could enroll in an income-based enrollment plan and would likely have a zero dollar monthly payment that would meet their needs.”
With the U.S. economy still 7.6 million jobs below pre-pandemic levels, recent graduates may struggle to find jobs to repay loans or a job in the field in which they have. graduated.
Johnson, of the ISU, said how quickly recent graduates will be able to find jobs that allow them to start repaying their loans depends largely on their specialization and the type of career they seek.
“We know in our state and in others that there are areas of shortage, people are looking for employees,” she said.
“But it must be a good game. Is this the kind of job a recent college graduate wants for a career, or is it a stopgap for them until they find the career job they want? “
Ryder said the Unemployment Insurance financial aid office had yet to hear many questions about the next payment repayment.
“I won’t be surprised if we get these questions when this starts. But as of yet, we haven’t heard from a ton of students about it, ”Ryder said.
“I think it might not be on their minds yet because definitely when they stopped we had questions.”
The T. Anne Cleary catwalk 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)
The graduates sit in their hats and gowns as they wait for the University of Iowa’s graduation celebration to begin at Kinnick Stadium in Iowa City on Sunday, May 16, 2021. (Andy Abeyta / The Gazette)
Graduates greet patients and workers at the University of Iowa Stead 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.
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