When her student loan payments began last October, Rachel Grace was faced with a difficult financial choice: start making payments or forego health insurance. He picked up his credits and has his fingers crossed that he stays healthy ever since.
“We’re all pinching pennies now. It’s been a huge health insurance cost every month, so I think at least for now I’m crossing my fingers that I’ll be able to handle this loan payment,” said Grace, 39, who works in marketing. Communications in Nebraska. “Of course, that can change in an instant, and that’s scary.”
But this week, Grace got the news that she’s been in financial trouble for months — her federal loans were forgiven under the Biden administration’s bad debt cleanup plan, wiping out about $300 a month in payments. to pay for at least 20 years.
after Supreme Court He has rejected President Joe Biden’s offer of debt relief and a pause in student loan payments during the Covid era expiredMillions of borrowers are faced with tough financial choices and new debt relief plans, leaving many in limbo about whether and when their debt will be forgiven, student loan counselors and borrowers said.
“The road to hell is paved with good intentions,” said Betsy Mayotte, president of the Student Loan Counselors Institute, a nonprofit that provides free student loan counseling. “I’ve seen quite a few borrowers who have been relieved, but on the other hand, things have had to happen really quickly, which has caused some confusion for borrowers and some bumps in the road.”
But the effects of that easing are beginning to be felt by more borrowers like Grace, something the Biden campaign is trying to exploit in the months leading up to the election.
Efforts to help student loan borrowers have been a top policy priority of Biden’s tenure. The Biden administration he says It provided 4.6 million Americans with more than two dozen different programs, including amendments to the loan forgiveness program available to public service workers, debt relief for borrowers who were defrauded or defrauded by their schools, and expanding debt forgiveness opportunities for people with disabilities.
Last month, Biden made an additional offer plans Millions will reduce or eliminate student loan debt this fall, an Education Department official said.
But many borrowers have struggled to understand what all these initiatives mean for them or to see the full benefits as some programs continue to roll out, said Robert Farrington, a student loan adviser and editor-in-chief of The College Investor website.
“There are so many announcements and new programs and so many different nuances to all of this. There are different repayment plans, there are different forgiveness programs, there are different court processes,” Farrington said. “It is difficult for borrowers to even know what belongs to them. It’s very confusing.”
Borrowers who believe they are eligible for debt relief but have not yet received it should contact a loan servicer or the department, Education Department officials say. ombudsman‘s office.
Amid the confusion, the Biden campaign is trying to show voters for a second term the real-world impact on borrowers receiving debt forgiveness, a campaign official said. Biden and other top administration officials have fanned out across the country to promote the effort.
In one instance, Biden visited the home of a former school principal in North Carolina whose $90,000 in debt was wiped out under the public service debt forgiveness program, a decades-long program the Biden administration has been pushing to make more borrowers eligible. A TikTok video of the man’s son’s visit has garnered millions of views.
Still, a majority of voters said they disapproved of Biden’s handling of the student loan issue — 44% approved, according to an NBC News poll last month, Biden’s strongest area among registered voters. In a separate place request According to the Harvard Institute of Politics, only 39% of voters under the age of 30 said they approve of Biden’s handling of student loans. But as in the NBC poll, it was a higher approval rating than other major issues.
A campaign official said the campaign needs more time and aggressive messaging to get the attention of voters who believe the campaign is not yet serious about the election. The campaign also seeks to compare Biden’s policies to those of former President Donald Trump. opposed student debt reduction programs and actively worked removing financial to them while president.
A close ally of Biden, DS.C. Rep. James Clyburn said he expects tens of thousands of additional borrowers to receive debt relief before the election as Biden’s programs continue to roll out. He said that Trump is against such programs.
“Who do you want to lead this program?” Clyburn told NBC News in an interview. “The guy who refused to make it happen?”
Biden “implemented the program [Trump] tried to get rid of,” Clyburn continued.
But millions of borrowers who are not eligible for debt relief will be required to make payments starting in October, putting additional financial strain on many. According to the University of Michigan, about 40% of borrowers who refinanced said they cut back on spending, and 29% said they reduced the amount they saved. request released in January.
The survey found that borrowers with lower incomes, less education and poorer income prospects are more likely to increase their use of credit to maintain their spending amid a recovery in loan repayments.
Others chose not to make their payments. By the end of December, about 64% of borrowers were current on their student loan payments. according to To the Department of Education.
The Biden administration has said it will end the harshest penalties for nonpayment, such as reporting delinquent borrowers to credit rating agencies and the use of forced collections, by this fall.
Mayotte said a number of borrowers he’s worked with have put off payments because they can’t afford to pay, or choose to use the money to pay off higher-interest debt or invest in high-yield savings or investment accounts. Management’s non-payment penalties come into play.
Once this happens, the wider effects of the resumption of payments may be felt, but so far it does not appear to have had a significant impact on the wider economy. analysis by Wells Fargo.
For Grace, who took out nearly $40,000 in private and federal loans to attend a four-year public university in 2003, she said monthly loan payments have been a burden on her finances since she first started paying more than a decade ago.
Early in his career, his loan payments were more than 15% of his take-home pay, preventing him from building an emergency fund for unexpected expenses like car repairs and causing him to accumulate credit. card debt. For years, he said, he had to work a second job on weekends to make ends meet.
But his financial picture changed dramatically during the pandemic when the Covid payment hiatus began. With no monthly loan payments, she said she was able to build up her savings and pay off her credit card debt. Finally, he was able to buy his first house.
“Before this break, things were pretty terrible,” Grace said. “And it gave me the opportunity to finally start catching up. It’s amazing what happens when you don’t have hundreds of dollars every month.”
Grace said she knew the payment would eventually start again and didn’t incur any additional monthly costs. But with inflation driving up the cost of everything from groceries to utilities, the fee recovery has put a greater strain on his budget than before.
When it came time to resume payments on the $10,000 she still owed in October, Grace was also deciding whether to enroll in her employer’s health insurance plan for 2024. He took the risk of going without health insurance. progress in paying off debt.
With his federal loan payment now forgiven, he knows what to do with next month’s extra payment.
“I won’t go to Target with that money, I won’t go on vacation,” he said. “I’ll sign up for health insurance.”