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Newsweek
a day ago
- Business
- Newsweek
Student Loans: Borrowers See Balances Surge Despite Forbearance Promise
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Student loan borrowers enrolled in the federal Saving on a Valuable Education (SAVE) plan reported unexpected increases in their loan balances, despite government assurances that no interest would accrue during their forbearance period. Affected individuals saw debts rise by thousands after receiving notices from the loan servicer Mohela indicating continued interest accrual, CNBC reported Monday. Newsweek has reached out to the Department of Education (ED) for comment via email on Monday. Why It Matters The situation has left borrowers—many of whom had relied on policy assurances of an interest-free reprieve—in financial limbo. The broader significance lies in the destabilizing effect on household budgets and future repayment plans, with the fate of Biden-era relief policies such as SAVE now uncertain and new federal actions ramping up collections on unpaid loans. What To Know The ED and Mohela confirmed their policy that interest should remain at 0 percent for borrowers under SAVE administrative forbearance, contradicting communications sent to some borrowers. "If you recently received an interest notice for your student loan account, please know that this is not a bill, and no action is necessary at this time," Mohela wrote in a notice at the top of its website. The resulting confusion arrived amid ongoing legal battles and staff cutbacks at the ED, complicating responses for those seeking help over their swelling balances. "The Biden Administration put a forbearance in place, promising that borrowers enrolled in the SAVE plan wouldn't accrue interest during the forbearance period. But some are now seeing their balances go up—despite that promise," Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. On Monday, CNBC reported that Mohela, a federal loan servicer, sent borrowers enrolled in the SAVE plan letters warning, "interest continues to accrue on your loan(s) during the forbearance period." Ellie Bruecker, director of research at The Institute for College Access & Success, told CNBC her student loan balance grew by approximately $3,000 during a year-long reprieve that was supposed to be interest-free. "I saw those numbers and my eyes bugged out of my head," the 34-year-old told CNBC, adding, "With the level of dysfunction at the Education Department right now, I have a real distrust this is going to get resolved for people. Other student loan borrowers also got the same message from Mohela and have gone on social media platforms like Reddit seeking answers, CNBC reported. An ED spokesperson reiterated that the SAVE Plan's forbearance does not accrue interest, a statement supported by Mohela's own website, which sets the interest rate for these borrowers at 0 percent. Nonetheless, servicing backlogs and miscommunications left many borrowers uncertain of their true balances—and with limited recourse. "If you're one of these students, you need to reach out to your loan provider immediately," Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. "However, in terms of the overall student loan situation, more clarity is needed from both the government and the providers." These complications followed legal challenges that halted the SAVE program in July 2024 after lawsuits brought by Republican-led states. As a result, approximately 8 million borrowers have remained in an administrative forbearance that was intended to be interest-free. The ED faced a severe backlog, with more than 1.98 million income-driven repayment applications pending at the end of April. At current rates, it could take over two years to process the backlog, potentially forcing millions to default or miss repayment opportunities. The Trump administration's moves to limit repayment options and resume collections on defaulted loans have deepened borrower uncertainty. A sign is displayed outside of the Lyndon Baines Johnson Department of Education building on May 18 in Washington, D.C. A sign is displayed outside of the Lyndon Baines Johnson Department of Education building on May 18 in Washington, People Are Saying Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: "The Department of Education has been anything but stable. With talk of restructuring or even eliminating the department altogether, morale is low, staff have been cut, and there's a massive backlog of applications. Borrowers are falling through the cracks, plain and simple." Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "It's yet another sign of real complications in the current student loan system in terms of clarity and consistency. Many borrowers were pleased with the new options meant to lower their payments during the Biden administration. However, with starts and pauses due to legal action, and now a new administration making sweeping changes, many of these same borrowers are growing frustrated, especially when a select few are seeing interest accrue on loans after being promised the plan they were enrolled in would not do so." What Happens Next? Borrowers in the SAVE plan forbearance are expected to remain in limbo until court proceedings resolve the program's future or until the ED updates its policies and systems. In the meantime, affected borrowers have been advised to closely monitor account statements and report discrepancies to their loan servicers. "The burden is falling squarely on the borrowers. This administration isn't interested in what the last one promised—and they may not honor prior forbearance terms," Thompson said. "Bottom line: These loans are expected to be paid back. No wiggle room. Whether your loan came from a predatory, unaccredited school or a legitimate institution, the message is the same—debt is debt—and the government intends to collect."
CNBC
a day ago
- Business
- CNBC
Millions of student loan borrowers were promised an interest-free break. This woman's debt is still growing
Earlier this month, Ellie Bruecker received a troubling notice from her student loan servicer, Mohela. "Although no payments are due at this time, interest continues to accrue on your loan(s) during the forbearance period," Mohela wrote to Bruecker in the June 1 letter, which CNBC reviewed. "You have the option to pay the interest during the forbearance." The problem: The U.S. Department of Education had promised borrowers who were enrolled in the so-called SAVE forbearance, including Bruecker, that interest would not accrue on their debt. Millions of borrowers were switched into the payment pause in the summer of 2024 after the Biden administration-era repayment program — called the Saving on a Valuable Education plan — became tied up in legal challenges due to its generous terms. The Trump administration has not said when that forbearance will end, and recently it released information showing that nearly 2 million student loan borrowers were stuck in a backlog of applications to get into other available repayment plans. Despite the government's promises, Bruecker's student debt has grown by around $3,000 during the roughly year-long SAVE reprieve, her loan documents show. "I saw those numbers and my eyes bugged out of my head," said Bruecker, 34. She's not the only SAVE borrower seeing interest accruing: Other people facing the same issue have taken to social media to try and get answers. At one point, around 8 million people were enrolled in the SAVE plan, according to the Education Dept. More from Personal Finance:Social Security gets break from student loan collectionsIs college still worth it? It is for most, but not allWhat to know before you tap your 529 plan Bruecker happens to work as the director of research at The Institute for College Access & Success, a nonprofit that does advocacy work in the higher education space. But she wonders how many student loan borrowers will even know that this wasn't supposed to happen, let alone be able to get it corrected. "Will they resolve this for everyone, or just those who get them on the phone and are loud about it?" she said. It's unclear how widespread the issue is. A spokesperson for the Education Dept. did not answer CNBC's questions about the issue some borrowers are facing, but said that those "enrolled in the SAVE Plan remain in a forbearance that is not accruing interest." Mohela did not immediately respond to a request for comment. But Mohela has a notice at the top of its website that reads: "If you recently received an interest notice for your student loan account, please know that this is not a bill, and no action is necessary at this time." The notice goes on to say that, "For borrowers on the SAVE administrative forbearance, interest is currently set at 0%. Refer to your loan details in your notice." The company does not say that the alerts were sent in error, but they likely were, said higher education expert Mark Kantrowitz. "MOHELA sent out misleading notices to their borrowers who are in the SAVE repayment plan," Kantrowitz said. "Borrowers who are worried about the MOHELA letter should check their loan history to see if the balance has changed," Kantrowitz added. If their debt has grown since July 2024, "they should contact MOHELA," he said. Bruecker said her loan records from both Mohela and the Education Dept. reflect a higher balance after roughly around $3,000 in interest was added to her debt during the forbearance. "Mohela has been allowing interest to accrue the entire time my loans have been in this SAVE forbearance," she said. She tried to contact Mohela to correct the error, but said she was unable to reach a representative despite waiting on the phone for hours. In recent months, the Trump administration has terminated around half of the Education Department's staff, including many of the people who helped assist borrowers when they ran into issues like this one. A federal judge has ordered Trump officials to reinstate the terminated employees, but the administration is now asking the Supreme Court to block that order. "With the level of dysfunction at the Education Department right now, I have a real distrust this is going to get resolved for people," Bruecker said.
Business Insider
25-04-2025
- Business
- Business Insider
As the government prepares to collect on defaulted student loans, a financial planner has advice to lower your monthly payment
The federal government has announced it will resume collections on defaulted student loans. Consolidating your student loans could reduce your payment if you're struggling. Look at the interest rates offered by both direct consolidation and private loans before deciding. If you're one of the 42.7 million Americans who have student loan debt, you may be worried about the federal government's plans to resume collections on defaulted student loans for the first time in five years. But don't panic yet. Rachel Gustafson, a CFP and certified college planning specialist with Financial Investment Team, says that student loan consolidation can help many borrowers. She explains who it's right for, the details on private versus federal consolidation, and how to start the process. Consolidation could lower your monthly payments Whether you should consolidate your loans depends on what type of student loans you have, your interest rate, and what your end goals are when it comes to your student loans, Gustafson says. " If you have federal student loans, it could make sense to help lower your monthly payments or simplify your payments into one payment," she says. "It could also give you access to income-driven repayment plans or forgiveness. Usually, consolidation involves consolidating interest accrued into your loan, and you may pick up a higher interest rate to do so." But if you have private student loans, consolidation will likely make sense if it lowers your interest rate or monthly payment. She explains that these types of loans usually don't have options like income-based plans, deferment, or forgiveness. Putting it simply, if you're having trouble paying your student loans, then consolidation might be a good choice. "Consolidation is right for those struggling to make payments and needing to simplify things," Gustafson says. Direct consolidation loans can be easier to handle To consolidate several federal student loans into a single student loan, a direct consolidation loan is your best bet. "Direct consolidation loans for federal [student loans] are my preference since they give you access to income-based plans and/or forgiveness," she says. While some income-based repayment plans are available, they may not be an option for long. Earlier this year, a federal court's injunction prevented the Department of Education from implementing the SAVE Plan and parts of other income-driven plans. This loan application is available online and allows borrowers to consolidate their federal student loans into a single loan with a fixed interest rate. However, she warns that sometimes consolidation can result in a higher interest rate, especially in today's interest rate climate. The process for consolidating private loans varies by lender. However, consolidation still offers many of the same benefits, such as potentially lower interest rates or monthly payments, plus the ease of having everything in one place. You can also consolidate into a private loan Gustafson warns against consolidating federal loans into private loans. "You lose access to income-based plans, deferment, and potential forgiveness in the future. The only time I see this become an advantageous option is if the interest rates are lower on the private loans and/or you are aggressively paying down your student loans," she says. Look at how your interest rates will change before making a decision Before signing on the dotted line for a loan consolidation, consider the types of student loans you have (federal versus private), your current payment and interest rate for each loan, and whether you'll save or increase your current interest rate by consolidating. Lastly, ask yourself whether consolidation is a necessity. "If you can afford your payment currently and you aren't going to get a more advantageous interest rate or term by consolidating, it probably doesn't make sense for you to consolidate," Gustafson says. "If you are struggling to make your payments, an income-driven repayment plan might make sense, and there are several to choose from, and many give a certain level of forgiveness after a number of years."
San Francisco Chronicle
23-04-2025
- Business
- San Francisco Chronicle
Student loans in default to be referred to debt collection, Education Department says
WASHINGTON (AP) — The Education Department will begin collection next month on student loans that are in default, including the garnishing of wages for potentially millions of borrowers, officials said Monday. Currently, roughly 5.3 million borrowers are in default on their federal student loans. The Trump administration 's announcement marks an end to a period of leniency that began during the COVID-19 pandemic. No federal student loans have been referred for collection since March 2020, including those in default. Under President Joe Biden, the Education Department tried multiple times to give broad forgiveness of student loans, only to be stopped by courts. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' Education Secretary Linda McMahon said. Beginning May 5, the department will begin involuntary collection through the Treasury Department's offset program, which withholds government payments — including tax refunds, federal salaries and other benefits — from people with past-due debts to the government. After a 30-day notice, the department also will begin garnishing wages for borrowers in default. The decision to send debt to collections drew criticism from advocates, who said borrowers had experienced whiplash and confusion with the changing student loan policies between the Biden and Trump administrations. 'This is cruel, unnecessary and will further fan the flames of economic chaos for working families across this country,' said Mike Pierce, executive director of the Student Borrower Protection Center. Already, many borrowers have been bracing for obligations coming due. In 2020, President Donald Trump paused federal student loan payments and interest accrual as a temporary relief measure for student borrowers. The pause in payments was extended multiple times by the Biden administration through 2023, and a final grace period for loan repayments ended in October 2024. That meant tens of millions of Americans had to start making payments again. Borrowers who don't make payments for nine months go into default, which is reported on their credit scores and can go to collections. Along with the borrowers already in default, around another 4 million are 91 to 180 days late on their loan payments. Less than 40% of all borrowers are current on their student loans, department officials said. Layoffs at the Federal Student Aid office at the Education Department have made it harder for students to get their questions answered, even if they wanted to pay their loans, said Kristin McGuire, executive director for Young Invincibles, a group that focuses on economic security for younger adults. And questions are swirling about certain income-driven repayment programs after a February court ruling blocked some of the payment plans. Borrowers in the more lenient, Biden-era SAVE Plan were placed in forbearance, in which borrowers receive relief from payments but still accrue interest. The Education Department in February took down applications for income-driven repayment programs — which tie a monthly payment to a person's income level — only to bring them back online a month later. 'Things are really difficult to understand right now. Things are changing every day,' McGuire said. 'We can't assume that people are in default because they don't want to pay their loans. People are in default because they can't pay their loans and because they don't know how to pay their loans.' For borrowers in default, one step to avoid wage garnishment is to get into loan rehabilitation, said Betsy Mayotte, president of The Institute for Student Loan Advisors. Borrowers must ask their loan servicer to be placed into such a program. Typically, servicers ask for proof of income and expenses to calculate a payment amount. Once a borrower has paid on time for nine months in a row, they are taken out of default, Mayotte said. A loan rehabilitation can only be done once. Biden oversaw the cancellation of student loans for more than 5 million borrowers. Despite the Supreme Court's rejection of his signature proposal for broad relief, he waived more than $183.6 billion in student loans through expanded forgiveness programs. 'Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment — both for the sake of their own financial health and our nation's economic outlook,' she said. ___ ___
Time of India
22-04-2025
- Business
- Time of India
'Pandemic-era freeze revoked': Why will millions in US face wage garnishment after May 5?
Starting May 5, the US Education Department will resume collections on defaulted federal student loans , ending a pandemic-era freeze and putting millions of borrowers at risk of wage garnishment and seized tax refunds. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' said Education Secretary Linda McMahon, announcing that the department will begin referring overdue debts to the Treasury Department's offset program. Borrowers in default will face withheld federal payments and garnished wages after a 30-day notice. Currently, around 5.3 million borrowers are in default, and another 4 million are nearing that threshold. Borrowers are considered in default after missing payments for nine months, a status that damages credit and opens the door to collections. The move, a shift under the Trump administration, follows years of leniency during and after the Covid-19 pandemic. Federal student loan collections were paused in March 2020 and remained so through the Biden administration's multiple — and mostly blocked — efforts at sweeping loan forgiveness. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Co-Founder of Google Brain, Andrew Ng, Is Reported To Have Read Every... Blinkist: Andrew Ng's Reading List Undo Critics say the restart will hurt working families still struggling with inconsistent policy changes. 'This is cruel, unnecessary and will further fan the flames of economic chaos,' said Mike Pierce, executive director of the Student Borrower Protection Center. Confusion has mounted amid layoffs at the Federal Student Aid office, paused repayment applications, and legal uncertainty over income-driven plans like the Biden-era SAVE Plan. 'Things are really difficult to understand right now,' said Kristin McGuire of Young Invincibles. 'People are in default because they can't pay their loans and because they don't know how to pay their loans.' Borrowers still have an option to avoid garnishment through loan rehabilitation, which involves nine on-time payments and is available only once, said Betsy Mayotte of The Institute for Student Loan Advisors. While President Biden has approved over $183 billion in targeted relief for more than 5 million borrowers, McMahon said the administration went too far. 'Going forward… we will shepherd the student loan program responsibly and according to the law,' she said.
