Latest news with #SarahSattelmeyer
Vox
09-07-2025
- Business
- Vox
Student loans are about to get worse
is a correspondent at Vox, where he covers the impacts of social and economic policies. He is the author of 'Within Our Means,' a biweekly newsletter on ending poverty in America. University tuition in the United States is notoriously expensive — so much so that Americans currently have over $1.6 trillion in student loan debt. But now, the routine process of taking out student loans has been overhauled as a result of the One Big Beautiful Bill, which President Donald Trump signed into law last week. The new law eliminates some student loan programs and adds borrowing caps that could make it harder for people to earn advanced degrees. In some cases, it could make financing college more difficult. 'This bill makes monumental changes to the higher education system,' said Sarah Sattelmeyer, project director for education, opportunity, and mobility in the Higher Education initiative at the liberal think tank New America. 'And a lot of the elements in the bill are going to make college more expensive or harder to access, especially for the lowest-income students, families, and borrowers.' So what, exactly, is in this bill, and how will it impact student loan borrowers? Borrowers will have fewer repayment options On X, Education Secretary Linda McMahon said that the president's spending bill 'simplifies the overly complex student loan repayment system.' In a way, she's right. The law consolidates a variety of student loan repayment options. Before, students could choose from roughly a dozen financing options, including the Biden-era SAVE plan, an income-driven repayment plan that eventually leads to loan forgiveness. Now, they have just two options. The first is the standard repayment plan, which includes a fixed monthly payment over a set period of time based on how much someone borrowed. The second is the Repayment Assistance Plan (or RAP), which is an income-driven repayment plan where borrowers' payments are a certain percentage of their income. The more money someone makes, the more that percentage increases. But while McMahon was right to say that the student loan repayment system is simpler, she left out the fact that dramatically limiting the number of repayment options will make it harder for people to finance their student loans according to their particular needs. 'Streamlining this system is a really important goal,' Sattelmeyer said. 'But one outcome of this plan is that payments would be more expensive for those at the bottom of the income ladder, and that's a really important piece in terms of people's ability to repay their loans.' One analysis found that under RAP, monthly payments could be hundreds of dollars more than they are under the SAVE plan, which is currently blocked by the courts and will be officially eliminated under Trump's new law. The Urban Institute also pointed out that the bills passed by the House and Senate don't account for inflation. 'This means as incomes rise over time, borrowers who make the same amount of income in real terms would gradually pay a larger percentage of their income over time,' wrote Kristin Blagg, principal research associate in the Work, Education, and Labor Division at the Urban Institute. The new caps on loans will make it harder to afford advanced degrees As this bill was making its way through Congress, experts were warning that it could worsen America's doctor shortage. That's because the law imposes new limits on how much people can borrow for graduate school and scraps the Grad PLUS loan program, which allows students to take out enough loans to cover the full cost of their programs. For graduate students, the new law puts an annual cap of $20,500 and a lifetime cap of $100,000 on borrowing. Those seeking professional degrees, like medical or law degrees, have an annual limit of $50,000 and a $200,000 limit in a lifetime. As I wrote last month, putting limits on how much money people can borrow is generally a good idea, because high amounts of debt can drag people down and get people in financial trouble. The problem is that the limits this law imposes simply won't be enough to cover the actual costs of these programs. According to the Association of American Medical Colleges, the median cost of attending a four-year medical program at a public school is over $280,000. At private institutions, it's just under $400,000. 'Loan limits are an important tool but I think the challenge here is it can be hard to know where, exactly, to set those limits,' Sattelmeyer said. 'The bill also doesn't address a lot of the other underlying issues with the program: It does not provide additional grant aid or funding to low resource students. And so it is limiting loans and not necessarily providing additional resources.' That means that some students might be pushed to turn to private lenders, who tend to charge higher interest rates. And in some cases, borrowers might not even qualify for those private loans. 'Private student loans often require a cosigner, so some students may not qualify, and they may have no options to fully finance and attend graduate school. So there is a possibility that for some students, this will be a barrier to accessing graduate school,' Sara Partridge, associate director for higher education policy at the Center for American Progress, recently told Business Insider.
Axios
11-05-2025
- Business
- Axios
Why student loan debt collections could be more painful than anticipated
The clock started ticking on a financial time bomb this week for student loan borrowers — those in default will now be referred to debt collections. Why it matters: Because of the messy state of the student loan world, the economic fallout could be far more widespread than anticipated, hitting some who typically would be able to pay back loans. It also comes amid recession fears, worries over higher inflation, and a slowdown in hiring. By the numbers: The 5.3 million who already are in default could see the federal government garnish their wages, Social Security benefits or tax refunds. Many more are in limbo. Some 20% of borrowers are in delinquency, but not yet at the default line — more than 270 days past due — according to a report earlier this week from credit agency TransUnion. That's up from 11.5% in February 2020, when the federal government stopped asking people to pay on their loans. Between the lines: Before 2020, typical defaulters, and those most at risk for default, were more likely to be older, low-income, people of color, those who attended for-profit schools or had dropped out of school. Now because of policy chaos, more at-risk borrowers are outside those confines, says Constantine Yannelis, a financial economics professor at the University of Cambridge, who's been studying student loans for more than a decade. "I'm most worried about young people who are just going to be tremendously confused by the student loan system," he says, especially "given the complete disarray that we're seeing in public institutions these these days." Zoom out: Many of these people would normally be able to avoid default, and work out a payment plan. But the mechanisms meant to help them navigate the process are in shambles. The White House gutted the Department of Education, which manages student loans. It is trying to do the same to the Consumer Financial Protection Bureau, which helps folks navigate the financial system. "This feels very much like it needs to be an all hands on deck effort, but they have dramatically cut the number of hands they have available," says Sarah Sattelmeyer, project director in the Higher Education initiative at New America. For example: Earlier this year, Eva Steege, an 83-year-old pastor in hospice care, joined a lawsuit against the Trump administration over its CFPB policy. The agency had been helping get her loan forgiven, a process interrupted by the administration's changes. Steege died March 15. Her "fear of leaving her surviving family members saddled with her student loan debt came to pass," federal judge Amy Berman Jackson wrote soon afterwards, in a ruling on the case. Yes, but: This isn't a mess the current White House started. The roots of the problem started in 2020, when the government told borrowers they no longer had to make payments. The Biden administration extended that grace period for three years. Plus: The program was poorly implemented and overly generous from the start, says Tomasz Piskorski, a finance professor at Columbia Business School, who wrote a major study on debt forbearance in COVID, published by Brookings. It was different from other kinds of pandemic debt relief programs, like for mortgage holders, who had to apply (and few did). For student loan borrowers, everyone got a pass. That's created a bigger problem. The bottom line: Getting out of this situation is going to be ugly for a lot of people at a not-great time for the economy — or higher education.
Yahoo
23-04-2025
- Business
- Yahoo
3 big reasons to worry as the government starts collecting defaulted student loans
Borrower advocates are warning about the potential for confusion and chaos as the Department of Education prepares to start forcibly collecting on defaulted student loans for the first time in five years. Secretary of Education Linda McMahon announced this week that the agency would resume mandatory collections next month, ending a pause that's been in place since the beginning of the pandemic. In doing so, the government will be dusting off vast legal powers to recoup unpaid education debts that include the ability to garnish wages and withhold tax refunds as well as Social Security checks. While many outside experts have acknowledged that the collections process needed to resume at some point, they've warned that recent upheaval within the Education Department and student lending program could end up creating new problems for borrowers, many of whom may not realize they still owe their debts after years of not having to pay them. There are currently more than 5 million borrowers with loans in default, who will be immediately affected by the restart. Millions more Americans are expected to fall deeply past due on their student debts in the coming months, with a large bulge in the fall. 'The best outcome for everyone would be for this to go smoothly,' Sarah Sattelmeyer, a higher education expert at New America. 'But there are many factors pointing to the possibility that that will not be the case.' Here are three major reasons experts say they're concerned. Student borrowers who have defaulted for the first time — meaning they've gone at least 270 days without a payment — still have a chance to get current on their loans. One way is to arrange a rehabilitation plan with their servicer, which requires making nine consecutive on-time payments set at an affordable share of their income. Alternatively, they can combine their old, past-due debts into a new consolidated loan. Read more: Tips and tricks for quickly paying off student loans The Department of Education has said it plans to email borrowers who are in default over the next two weeks and urge them to contact the agency's Default Resolution Group to make a payment or begin a rehabilitation plan before the agency starts seizing wages later this summer. One potential problem? Nobody's sure the contractors will be prepared to handle the surge of phone calls. That's what happened when regular student loan payments resumed in 2023. The deluge of callers looking to arrange payment plans and iron out paperwork issues swamped servicers' capacity to handle them, leading to hours-long waits on the phone. Betsy Mayotte, head of The Institute of Student Loan Advisors, said she is worried that as borrowers in default rush to deal with their loan issues, there could be another 'overload to the system' that delays their ability to sign up for rehabilitation. 'I don't know what their bandwidth is, but the Department of Ed wasn't given any extra money that I'm aware of,' she said. After mass layoffs that were designed to slash its headcount in half, the Department of Education has been left with a bare-bones staff. That may leave it without the in-house manpower and expertise to manage the return to mandatory collections. While government contractors handle direct customer service work for the student lending program, career staff still play an essential role in managing those efforts. Department officials are responsible for everything from day-to-day decisions like when to send outreach emails or surge call center staffing to tracking default rates and analyzing whether outreach efforts are actually reducing defaults, said Sattelmeyer. The agency may now lack the staff to properly handle those responsibilities. 'The totality of the decimation of staff across the agency means that not only have we lost a ton of knowledge, but existing staff are doing two or three jobs,' she said. Potentially making matters worse: As part of its layoffs, the department eliminated its oversight teams responsible for essentially double-checking its servicers' work for errors. One former education official said that could be especially problematic as forced collections restart, since the department's contractors frequently made mistakes on rehabilitation applications. 'The paperwork would go missing all the time. And you could make nine rehabilitation payments, the collector would never process your paperwork, and you'd be back at zero,' the former official said. 'You only get one bite at the apple with these methods to cure [a defaulted loan]. And if they screw it up, you're screwed.' Many of the people currently in default are just deeply confused about the status of their own loans, in part because they haven't been forced to make payments on them in so long and may not be prepared to navigate the bureaucratic process of getting their debts back on track. According to Mayotte, whose group offers free advice to student borrowers about managing their debts, some defaulters assume their loans were canceled through Biden's mass forgiveness programs that were actually halted in court. Others assume Trump is now trying to unforgive their debts. And still others are under the misconception that the government has already missed some sort of statute of limitations on collecting their loans, the way state laws bar creditors from pursuing some kinds of debts after a few years. 'I've seen some defaulted borrowers saying, 'Welp, they haven't come near me in five years. Good luck with that,'' she said. 'And they're going to be in for not a good surprise.' Jordan Weissmann is a senior reporter at Yahoo Finance. Sign up for the Mind Your Money newsletter Sign in to access your portfolio
Yahoo
23-04-2025
- Business
- Yahoo
3 big reasons to worry as the government starts collecting defaulted student loans
Borrower advocates are warning about the potential for confusion and chaos as the Department of Education prepares to start forcibly collecting on defaulted student loans for the first time in five years. Secretary of Education Linda McMahon announced this week that the agency would resume mandatory collections next month, ending a pause that's been in place since the beginning of the pandemic. In doing so, the government will be dusting off vast legal powers to recoup unpaid education debts that include the ability to garnish wages and withhold tax refunds as well as Social Security checks. While many outside experts have acknowledged that the collections process needed to resume at some point, they've warned that recent upheaval within the Education Department and student lending program could end up creating new problems for borrowers, many of whom may not realize they still owe their debts after years of not having to pay them. There are currently more than 5 million borrowers with loans in default, who will be immediately affected by the restart. Millions more Americans are expected to fall deeply past due on their student debts in the coming months, with a large bulge in the fall. 'The best outcome for everyone would be for this to go smoothly,' Sarah Sattelmeyer, a higher education expert at New America. 'But there are many factors pointing to the possibility that that will not be the case.' Here are three major reasons experts say they're concerned. Student borrowers who have defaulted for the first time — meaning they've gone at least 270 days without a payment — still have a chance to get current on their loans. One way is to arrange a rehabilitation plan with their servicer, which requires making nine consecutive on-time payments set at an affordable share of their income. Alternatively, they can combine their old, past-due debts into a new consolidated loan. Read more: Tips and tricks for quickly paying off student loans The Department of Education has said it plans to email borrowers who are in default over the next two weeks and urge them to contact the agency's Default Resolution Group to make a payment or begin a rehabilitation plan before the agency starts seizing wages later this summer. One potential problem? Nobody's sure the contractors will be prepared to handle the surge of phone calls. That's what happened when regular student loan payments resumed in 2023. The deluge of callers looking to arrange payment plans and iron out paperwork issues swamped servicers' capacity to handle them, leading to hours-long waits on the phone. Betsy Mayotte, head of The Institute of Student Loan Advisors, said she is worried that as borrowers in default rush to deal with their loan issues, there could be another 'overload to the system' that delays their ability to sign up for rehabilitation. 'I don't know what their bandwidth is, but the Department of Ed wasn't given any extra money that I'm aware of,' she said. After mass layoffs that were designed to slash its headcount in half, the Department of Education has been left with a bare-bones staff. That may leave it without the in-house manpower and expertise to manage the return to mandatory collections. While government contractors handle direct customer service work for the student lending program, career staff still play an essential role in managing those efforts. Department officials are responsible for everything from day-to-day decisions like when to send outreach emails or surge call center staffing to tracking default rates and analyzing whether outreach efforts are actually reducing defaults, said Sattelmeyer. The agency may now lack the staff to properly handle those responsibilities. 'The totality of the decimation of staff across the agency means that not only have we lost a ton of knowledge, but existing staff are doing two or three jobs,' she said. Potentially making matters worse: As part of its layoffs, the department eliminated its oversight teams responsible for essentially double-checking its servicers' work for errors. One former education official said that could be especially problematic as forced collections restart, since the department's contractors frequently made mistakes on rehabilitation applications. 'The paperwork would go missing all the time. And you could make nine rehabilitation payments, the collector would never process your paperwork, and you'd be back at zero,' the former official said. 'You only get one bite at the apple with these methods to cure [a defaulted loan]. And if they screw it up, you're screwed.' Many of the people currently in default are just deeply confused about the status of their own loans, in part because they haven't been forced to make payments on them in so long and may not be prepared to navigate the bureaucratic process of getting their debts back on track. According to Mayotte, whose group offers free advice to student borrowers about managing their debts, some defaulters assume their loans were canceled through Biden's mass forgiveness programs that were actually halted in court. Others assume Trump is now trying to unforgive their debts. And still others are under the misconception that the government has already missed some sort of statute of limitations on collecting their loans, the way state laws bar creditors from pursuing some kinds of debts after a few years. 'I've seen some defaulted borrowers saying, 'Welp, they haven't come near me in five years. Good luck with that,'' she said. 'And they're going to be in for not a good surprise.' Jordan Weissmann is a senior reporter at Yahoo Finance. Sign up for the Mind Your Money newsletter Sign in to access your portfolio
