Navigating student loan debt: Repayment programs, looming threats as payments resume October 1

OKLAHOMA CITY, Okla. (KOKH) — As federal student loan payments resume Oct. 1, experts share what programs borrowers should be aware of and how scammers may target your hope of becoming debt-free.

According to federal data, on average borrowers in the US owe $37,338 in student loan debt for a Bachelor’s degree. That average has tripled since 2007. For a certification program, Associate’s degree and other programs, borrowers average about $15,000 in loans.

10% of student loan borrowers owe more than $100,000.

American student loan debt is affecting millions, with more than $1.7 trillion in overall debt.

That has a financial impact on everyone.

“It’s about one in four us adults who may need to cut spending and we’re gonna feel that locally and nationally in the economy,” said Dr. Billy Hensley, President and CEO of the nonprofit National Endowment for Financial Education.

US data shows even 20 years after starting college, borrowers owe $20,000 on loans.

“So many Americans are recognizing that student loan debt is basically a catch-22,” said Sarah Foster, an analyst with Bankrate. “It helps Americans further their income opportunities, but they’re also kind of delaying major financial milestones in wealth building because of that debt.”

A Bankrate survey found that nearly half of borrowers who still owe on their loans are calling student loan debt a national crisis. Foster said the question of loan forgiveness through the federal government also confuses borrowers.

This issue is likely not going away and policymakers are likely going to face increased pressure as the years go on.

The National Endowment for Financial Education found that one in 10 borrowers expect to cut back expenses by $1,000 to afford their payments.

“In a time where two-thirds of Americans are really living paycheck to paycheck, a lot of people have already cut the fat if you will from their budgets,” Hensley said. “Now, this is gonna be a hard transition for many millions of people.”

President Joe Biden’s plan to eliminate student loan debt was stopped by the US Supreme Court, but there are multiple payment options though.

• “On-ramp” to repayment program

According to the Biden administration, the program runs from October 1, 2023 to September 30, 2024. It’s intended for “financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies” after a three-year pause on payments.

“That really limits the financial stress that you know, not making payments, could cause for your credit profile,” Foster said.

• Savings on a Valuable Education (SAVE) Plan

The income-driven repayment (IDR) plan was announced in August and could be the most cost-effective plan for borrowers.

According to the Biden administration, the plan calculates payments based on a borrower’s income and family size. The payment is not based on their loan balance and forgives the total remaining balance of the loans after a certain time period.

More than half of student loan borrowers could benefit from the SAVE Plan. According to the Biden administration, it could cut many borrowers’ monthly payments to zero and save other borrowers around $1,000 per year.

“It theoretically is going to be one of the cheapest you know repayment plans out there to date,” Foster said. “It could potentially speed up your forgiveness timeline.”

Borrowers could pay as little as $0 a month on student loan payments but still get credit in the program, leading to loan forgiveness.

“Typically to get that payment of $0 a month under this new plan, your income would have to be about $32,000 a year,” Foster said. “It’s really targeted towards those Americans who are probably feeling the most cash strapped because of inflation and also the ones who are probably reeling the most from the return of student loan payments.”

• More repayment options

Borrowers can evaluate newly launched Biden administration plans as well as traditional repayment options for student loans on the federal aid website.

“That will give you a recommendation or place you into this the best plan for you based on your circumstance,” Hensley said. “You’ll get information about the repayment options that are available to you.”

With all of these new options and programs, borrowers need to be careful. Hensley said people need to protect their information.

If something is too good to be true, it is.

Scammers are sending texts and emails, calling borrowers and posting fake programs online. Security experts said scammers can use emotions against people, like the hope of financial freedom.

A look at this email promising to eliminate debt can be debunked by looking at the sender’s address and the typos in the body of the message.

If a borrower is unsure about the legitimacy of a program they should contact the number included on the email or go to the financial aid website.

Oklahomans, on average, took out less debt for education than other states. But the average student debt per borrower in Oklahoma still sits at $32,031 and the average is rising each year. Last year, it increased by $382.

Foster said as payments start again this fall, more pressure could be put on local and federal legislators to address the debt issue. In the same Bankrate survey, people offered solutions.

“They’re really saying here that students are not educated enough about the financial implications of their debt and that college tuition costs have gotten out of hand,” she said. “So, even something like holding universities accountable for that education and even, you know, continuing to prioritize financial literacy overall. These are really important steps and could also be something that could potentially help.”