February 21, 2024

As Student Loans Come Due Again, Many Lenders Lose Lifelines

With her student loan payments on hold for three years, Ashley Dorn, a public school music teacher, found another use for the money she saved during the moratorium. She used the extra money to pay off $10,000 in credit card debt, a bill that had plagued her for the past decade.

“I couldn’t do it without this student loan debt break, and I’m worried I’ll just have to start working again,” she said of the credit card debt. She can’t imagine being able to make payments unless she finds another job, she said, on top of her “already very exhausting and stressful career”.

She earns about $50,000 a year and her husband earns about $45,000 as a government employee, but they still live paycheck to paycheck. Since graduating in 2014 with a master’s degree in education from State University of New York Empire State College, Ms. Dorn and her husband, Jonathan, who live near Albany, have been making monthly payments on more than $160,000 in student debt. They stopped in March 2020, when the Trump administration said, as part of a pandemic relief effort, borrowers with federal student loans could stop making monthly payments.

The couple’s payments were almost $900 a month, and Ms. Fist on an income-based repayment plan, which adjusts payments to the borrower’s salary.

Now that the break has ended in late August, and President Biden’s debt forgiveness proposal has been blocked by the Supreme Court, the Dorns and millions of others are facing those loan payments again.

For many of the 43.6 million borrowers with federal student debt, the three-year break created a financial cushion that allowed them to use the money for other purposes: buying homes, paying off credit card debt, supporting family members, undergoing overdue medical procedures and booking vacations. Now they are figuring out how to cut back to fit those payments into their budgets.

The Dorns always assumed they would have children someday, but the burden of their student loan debt made them reconsider. For now, their two dogs, Micah and Oscar, and two cats, Ellie and William, are enough.

“That conversation is, like, off the table indefinitely,” Miss Dorn, 33, said. In addition to monthly expenses such as their mortgage and car payments, Mr. Dorn has Crohn’s disease, which adds an additional layer of financial stress.

The couple said they expect their new monthly payments, which will be calculated by their income-based repayment plans, to be about $800. That could change with the Department of Education’s new IDR option, the Save on a Valuable Education plan, or SAVEwhich takes into account income and family size.

Before the payment break, Ms. Dorn relied on her credit card to cover expenses such as an unexpected emergency room visit, veterinary bills, health care co-payments and new car tires. She used credit to replace their water heater, cover a few car insurance payments, and install a new transmission in her husband’s car. In the past six months, she paid off her credit balance and closed the card using a debt settlement program.

For Shantel Anderson, 27, the break was a lifeline that allowed her to support her mother and help her avoid eviction. Both struggled when Ms. Anderson was growing up in Philadelphia, bouncing from apartment to apartment until they were evicted; they ended up at a homeless shelter for a week right before she started college. Her mother lost her job earlier that year, and Ms. Anderson, then 18, postponed her first fall semester of college because she couldn’t afford to go. After losing most of her possessions during the eviction, Ms. Anderson relied on donations from people in her life, including her school guidance counselor, for dorm supplies.

Ms. Anderson received financial aid and student loans to study political science at Eastern University while holding down a work-study position and other employment, but still graduated in 2018 with $43,000 in debt. The moratorium, which freed her up to $455 a month, allowed her to cover her mother’s phone bill and some car repairs. Ms Anderson also helped her mother with groceries, medicine, gas and cat food. While handling these costs, her mother could put all her income towards paying rent and utilities.

Ms. Anderson’s first full-time job out of school, at a veterinary hospital, paid $32,000 a year, and the hospital provided housing at the time. When the pandemic recession set in, her hours were cut. She made one final full payment on a student loan in March 2020, and then a few more monthly payments of $50. But when she found out she would be losing her housing, she stopped making the debt payments to pay for rent and other bills.

The break allowed her to move into a three-bedroom high-rise apartment with a pool and gym — amenities she thought she’d never be able to afford — paying $500 for her share of the monthly rent with three roommates. She bought a car, which made running errands easier, and was able to cover about $400 in copayments for unexpected health issues and medical procedures.

Some borrowers were surprised last August when Mr. Biden’s debt relief plan was announced.

“That day was crazy for me,” Ms Anderson said. She believed the plan would have cut her federal student debt in half. Their relief soon came into doubt after Republican lawmakers filed a series of lawsuits to block the plan.

When the payments resume, Ms. Anderson expects her monthly bill to stay around $455, adding to her $250 monthly car and credit card payments. She increased her income to more than $60,000 a year working as a data manager at a non-profit business, and signed up for Public Service Loan Forgiveness (PSLF) last October – but she’s already started cutting back on some expenses.

She stopped going to therapy to save on out-of-pocket co-payments and talked to her mother about not being able to help her as much. In an emergency, Ms Anderson said, she would sell her car.

She still helps with some of her mother’s expenses: the phone bill, gas money to commute to her part-time job at a nursing home and, sometimes, groceries. But her mother has already fallen behind on rent, and her landlord has filed eviction paperwork.

“She had a court date,” Ms Anderson said. “Her landlord didn’t show up, so the judge threw out her case. I was like, thank the lord, we have more time.”

For others, the break helped redirect money to items like home renovations and vacations. Elizabeth Burton and her husband, Kyle, have private and federal student loan debt of about $175,000. The moratorium saved the couple, who live in Manchester, NH, about $650 a month. Her schedule as a macrographer allowed her to stay home during the day, saving them an additional $1,200 in childcare costs during the pandemic, keeping her 8-year-old and 5-year-old at home.

Although Ms. Burton, 39, and her husband, 38, a sales representative, still pay $500 a month on private loans, the extra funds allowed them to add a second bathroom to their home, pay off credit card debt and book an eight-day family vacation to Disney World.

Now that Ms. Burton and her husband believe an income-based repayment plan would result in a higher bill than before.

“There’s no money for my kids for college,” Ms. Burton said. “I will still pay my loans down. But you know, my son is 8. I have 10 years left in my federal loan. There is no money for him. He’s either going to have to take out loans, he’s going to have to live at home, he’s going to have to get a scholarship — I’ve got nothing left for him.”

The Dorns used some of their student debt savings to book a vacation, too — for July 2025. They plan to celebrate their anniversary in Jamaica, hoping to soak up the tropical atmosphere and explore the marine wildlife. The couple is on a payment plan for the trip, which offers the option of spreading small payments over three years. It’s their dream vacation, Miss Dorn said. But with the payment break ending, they’re thinking of giving that up too.

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