Over one million North Carolinians have student loan debt, and the average borrower owes about $25,000. Even under normal circumstances, education debt can be prohibitive.
It affects the borrower’s ability and readiness to buy a home or start a family. It can even make things like taking a small annual vacation impossible. It is good, then, that during COVID-19, the federal government has made some temporary provisions for federal loan borrowers. Forbearance is available under the CARES Act until Sept. 30, 2020. But with the long-term financial impact of the crisis still accruing, it is uncertain whether borrowers will be in any better shape to repay when the provision ends this fall.
Host Frank Stasio talks about the landscape of student loan debt during COVID-19 and beyond with WUNC education reporter Liz Schlemmer; Rochelle Sparko, director for NC Policy at the Center for Responsible Lending; and Trey Roberts, a first-generation college graduate and co-founder of Raleigh Pride.
On The Complexity of Borrowing Student Loans
When Trey Roberts decided to transfer from a community college to William Peace University, a small private school in Raleigh, he knew he’d need significant financial aid in the form of student loans.
He also had to take out a private loan, which his aunt co-signed for him. “I had a lot of guilt about asking her to cosign. I wish there was a way I could get her off of this, like, get her away from this, release her from this.”
On the CARES Act And Which Kinds Of Student Loans Are Eligible For Forbearance
For student loan borrowers with federal loans, the Coronavirus Aid, Relief and Economic Security (CARES) Act provides temporary forbearance through September 30. If federal loan borrowers are experiencing financial hardship due to COVID-19, they can refrain from paying on their loans without credit reporting penalties or interest accrual. For those with a surplus of income right now, it is a great time to invest in repayment, as 100% of payments made during the CARES Act forbearance period will be applied to the principal loan balance, rather than the interest.
There are some exceptions among those able to repay right now. “Some people who are in either public service loan forgiveness programs, it might not be to their benefit to pay ahead,” says WUNC education reporter Liz Schlemmer. “Because if they're still working in public service, these months count towards their forgiveness. They have to work in this job and make payments for 10 years to have all of their loans forgiven. Well, the time that they're working now is still going to count whether or not they actually make payments during these months. And it could be to their benefit to not make those payments and continue to collect the time that they're already compiling.”
On How Student Loan Debt Impacts Borrowers’ Quality Of Life
“Growing up and not being able to have certain luxuries that other people are able to have, you kind of get fearful that your future will lead to you having that limited access to things in the world,” says Roberts. “I dreamt of something bigger and of bigger things, but also dreamt of not being held back by constant debt. You make the choice between taking out thousands of dollars in loans and then that fear … Is it worth it? Is it going to just put me back into what I'm trying to escape in the beginning?”
Schlemmer also notes, “There are more student loan borrowers than before, and it's also becoming a larger proportion of household debt. And experts say that borrowers are reporting that that's keeping them from making major expenses and reaching life milestones. So things like buying a house, or starting a family or even getting married — some people are delaying this just because of the financial strain that student loans are putting on their savings.”
On Why It Is Important To Call Your Private Loan Servicer Right Now
Loan servicing agencies are under no obligation to look out for borrowers’ best interests, cautions Rochelle Sparko, Director of NC Policy at the Center for Responsible Lending. “They're going to do whatever they can to put you into the highest cost option or the fastest option. The reality is that these loan servicers are getting paid very little by the federal government to service these loans. And though we haven't seen much in the way of what's in those contracts, they're not public. We suspect that they're being financially incentivized basically to move callers off the phone as quickly as possible. Putting a borrower into forbearance is a very quick thing to do. Assessing their income and creating an Income-Based Repayment Plan for them takes more time. And we believe that they're being pressured to push people off the phone as quickly as possible.”
While the CARES Act is being honored for most federal student loan borrowers, Sparko suggests that private loan borrowers also call their loan servicers to see if there is any provision being offered to them during the coronavirus crisis. More information is available at the North Carolina Department of Justice website.