Ask an Expert: How Does Student Loan Repayment Work in 2021-22?

The pandemic pause on student loan payments is set to expire at the end of September 2021, leaving many borrowers grappling with the labyrinthine student loan repayment system yet again. (Editor's Note: As of August 6, the payment pause was extended through January 2022.) Rachel Fishman and Sarah Sattelmeyer from New America’s Higher Education Initiative sat down to talk about federal student loans with Betsy Mayotte, the president of The Institute of Student Loan Advisors (TISLA) which provides student loan borrowers with fair, free student loan advice and dispute resolution. Mayotte addresses some of the common issues she sees when she counsels borrowers, the types of borrowers she encounters, and her thoughts on the role policy can play to help borrowers.

The following interview has been edited for clarity and length.

New America: There are so many different types of repayment plans for federal student loans. What are some of the top resources borrowers can use to figure out the best repayment plan for them?

Mayotte: The Department of Education has a loan simulator tool that not only tells you what your monthly payment would be, but most importantly it tells you how much you're going to pay over time. Then you can compare plans and make the choice that is best for your situation. In addition to the loan simulator, TISLA has a calculator on its site. But, importantly, both calculators will help you understand what your payment would be under all the different repayment plans, whether you qualify for forgiveness, and how much you would pay over time.

As far as understanding the rules of the repayment plans, there are a lot of websites out there that present the information in different ways, from comparison charts, to FAQs to training modules.

A growing share of student loan debt is held by older borrowers, those who don’t traditionally fit the profile of student borrowers we read about in the news. How is counseling them different?

Student debt is absolutely not a young person's issue anymore. According to the New York Fed, two thirds of borrowers are over the age of 30 and almost one-fifth are over the age of 50.

There are a couple of reasons why I think this shift is occurring. Part of it started with the 2008 recession when a lot of non-traditionally-aged students enrolled in college because they got laid off or their job was affected in some way by the recession. The other reason is due to the history of student loans. Several policy decisions made years ago have led to many borrowers extending the terms of their loans either through income-driven repayment plans where interest can amortize or because they consolidated the loan, stretching out the payments for several years longer than when a borrower originally took out the loan.

Older borrowers are like traditionally-aged borrowers in that they are trying to figure out how to pay their loans off as cheaply or quickly as possible. But where they differ from young borrowers is when it comes to income-driven repayment and forgiveness terms. For older borrowers, 20 to 25 years means they will be 75 or older and at that point death comes into the conversation more often than is comfortable. Borrowers 55 or older also need to balance making contributions to their looming retirement with paying off student loan debt.

I also run into a lot of Parent PLUS borrowers, so it’s not uncommon for me to have a 75-year-old whose only income is social security and they have six figures of debt. As you can imagine, the complicated system of student loan repayment is incredibly difficult for them to navigate. One borrower that I counseled was 88 years old and her social security benefit was being garnished due to defaulting on her Parent PLUS loan. We ended up helping her obtain a total and permanent disability discharge.

A lot of our readers might qualify for a program called Public Service Loan Forgiveness (PSLF). Can you explain how PSLF works? And if someone wants to find out if they’re qualified, what steps should he or she take?

In order to qualify for PSLF, you need to make 120 eligible payments on an eligible loan while working full-time for an eligible employer, and the key here is that all of those things have to happen at exactly the same time.

An eligible employer is either government (federal, state, local, or tribal) or any 501(c)3 nonprofit. There are other nonprofits that are potentially eligible if they meet other criteria, but those are very few and far between. As for type of loan, you must have a Federal Direct Loan. If you don’t have a Federal Direct Loan, you can consolidate your federal loans, such as Federal Family Education Loan (FFEL) or Perkins, into a Federal Direct Consolidation Loan but unfortunately, any payments you made prior to that won’t count towards PSLF.

The last key is what repayment plan you are enrolled in — any of the income-driven repayment plans count for PSLF along with the 10-year standard repayment plan, though if you are on the 10-year plan your loans will be paid in full in 10 years regardless so if you are pursuing PSLF you should be on an income-driven repayment plan. The Department of Education has a useful PSLF help tool.

We strongly encourage anybody who's considering pursuing these forgiveness programs to submit the PSLF certification and application form. Once you submit that form a few things will happen. One, the servicer will let you know whether your loans are eligible. Two, your loans will be transferred to Fedloan servicing who handles PSLF (Editor’s Note: This interview was conducted before the news that Fedloan servicing was ceasing its servicing contract at the end of 2021. It is unknown which servicer or servicers will handle the PSLF portfolio starting in 2022). Three, it will determine whether your employer is eligible and then let you know how many of your payments have counted so far. You should submit this form every year and whenever you change jobs.

Currently, federal student loan borrowers have their payments paused during the pandemic. The waiver is set to end on September 30, 2021. What should they do if they’re concerned they won’t be able to repay?

I’m telling borrowers to prepare for the worst and hope for the best. We have to take into consideration that we’re looking at an unprecedented event: 42 million federal student loan borrowers will enter repayment at the same time. I know that the Department of Education and servicers are working hard to try and get ready for this, but I don’t think there will be nearly enough well-trained staff to deal with the volume.

If you are concerned you are not going to be able to afford payments, you should start planning, no later than the beginning of August, to talk to your servicer about your options such as an income-driven repayment plan, deferment, or forbearance. Once the payment pause ends, there will likely be long call wait and paperwork processing times. Also, be on the lookout for communications from your servicer and the Department of Education. Make sure they have your updated contact information. Check your email and your mail.

I’m telling borrowers to prepare for the worst and hope for the best.

What are some of the most common issues you see when you counsel borrowers? And can you offer any advice on the ones that are easier to solve?

I usually get two types of borrowers. The first has good Google skills, they’ve read all the information, but they are looking for someone to verify that they haven’t missed anything and that their understanding is correct for their intended student loan repayment strategy.

The other half just want someone to tell them what to do because they’re completely overwhelmed by their debt and/or about the repayment system. Unfortunately for these borrowers, a lot of times, their issues could have been resolved a long time ago if they had just reached out and asked a question. So my biggest piece of advice is that if you’re not sure, or if you’re struggling, or you think you might be struggling in the future, reach out. Reach out to your loan servicer. If you are in default, reach out to the collection agency. If you don’t want to do that, for whatever reason, reach out to an expert (not your family or friends who likely don’t know the complexities of the system) — especially one that is free and trustworthy.

I encourage borrowers to be active in their student loan repayment strategy and re-evaluate your student loans every year, preferably around tax time when you have the information in front of you.

(Editor's note: You should never pay for someone to help you access or choose a repayment plan or forgiveness program. Whenever you have any questions or difficulties, you should start with your servicer and may also want to visit trusted governmental organizations’ — such as the Department of Education or Consumer Financial Protection Bureau — websites and other nonprofit organizations that help borrowers free of charge.)

Since our higher education program is focused on policy solutions, how do you think loan servicing can be improved?

It's about providing the right information at the right time, and right now entrance and exit counseling is provided at the worst possible times. For a lot of families, the first time they're exposed to the reality of their student loan debt they’ve already moved into the dorms. Entrance counseling needs to be moved to the federal financial aid application process, so people are getting that education when it's useful and then they can use it as part of their decision making process.

Similarly, a large proportion of people who went through exit counseling don't remember getting exit counseling. That’s because exit counseling occurs during a crisis moment: either they are about to graduate and are looking for work and housing, studying for finals, or they’ve withdrawn from school. And then, because there’s a six-month grace period before repaying, the information is even further diluted. The Education Department gives a 0.25 percent discount on a loan’s interest rate if the borrower signs up for automatic payments. The Department should instead redirect that discount for completing exit counseling 45 days before the first payment is due.

Also, servicers are not paid enough money to counsel the borrower in the way that is helpful and walks them through their options. Good counseling takes 30 to 40 minutes and servicers can’t afford to have their call center people on the phone for that long, based on what they’re paid, so the incentives aren’t there. We need to change the incentive structure of servicers to encourage them to spend more time with the borrowers when needed and ask the questions that borrowers don’t know to ask.

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