Jennifer Magaw graduated from law school in 2012, but she continued comparing notes with her peers for several years afterward.
Her notes weren’t about classes. They were about student loans.
After earning a bachelor’s degree without debt from Rhode Island College, Magaw went on to get her law degree from Roger Williams University School of Law. But anxiety and confusion clouded Magaw’s excitement to launch her legal career as she was left wondering how to pay back more than $100,000 in student loans.
“I was in a state of collective panic with [former classmates]; we would get together to compare how long each other was on hold with servicers and what information – if any – we were told,” Magaw said. “I can’t overstate the sickening stress and uncertainty … I felt like if I did one thing wrong or missed a single payment, I’d have to start the whole thing over.”
Relief came for Magaw and millions of Americans in March 2020 when Congress passed the Coronavirus, Aid, Relief and Economic Security Act. The $2.2 trillion economic stimulus measure also temporarily suspended federal student loan interest and payments for borrowers who owed a combined $1.6 trillion in student loan debt.
After eight extensions over the next three years, Congress passed a bill in June that would bring that suspension to an end.
That means federal student loan borrowers – including over 100,000 Rhode Islanders – will be required to make payments on Oct. 1.
Magaw’s decadelong battle with student loans officially came to an end in February when her debts were forgiven because she completed all the payments required from the Public Service Student Loan Forgiveness program she was enrolled in.
But feelings of confusion and anxiety she knows all too well continue for many borrowers as they try to make sense of their options while preparing to add student loan payments back into their monthly budgets in an uncertain economy.
Victoria McNeil has witnessed this uncertainty firsthand as director of financial aid at the University of Rhode Island.
“With everything in the media recently about student loans and forgiveness, there’s been more current and former students calling because they are confused,” McNeil said. “Especially with COVID-19, people have been asking a lot more questions and looking for guidance about what they should be doing.”
McNeil recommends borrowers enroll in President Joseph Biden’s new income-driven payment plan, Saving on a Valuable Education plan. It bases a borrower’s monthly loan repayments on their earnings and family size and builds upon the administration’s existing student loan relief efforts. These include adjustments to past servicing errors made this year, resulting in more than 2,500 Rhode Islanders who owed a combined total of $109 million becoming eligible for forgiveness.
White House officials have deemed the new payment option as the “most affordable student loan repayment plan ever” because it offers more-generous benefits than previous income-driven repayment plans.
Among these is an increase to the income exempt from monthly payments from the current 150% of the federal poverty guideline to 225%. That means 1 million more borrowers who make less than $15 an hour or $30,000 a year will qualify for $0 monthly payments.
Borrowers with undergraduate loans will also have their payments halved from 10% to 5% of their discretionary income and payments for those who also have graduate loans will be a weighted average between 5% to 10% of their income. Also, the U.S. Department of Education will no longer charge interest that is not covered by a borrower’s monthly payments. This means if borrowers meet their monthly payments, their balances will no longer grow because of unpaid interest.
“This is the newest and one of the most exciting resources out there, especially because students’ loans won’t be able to grow while they’re in school,” McNeil said.
For those with nonfederal loans, Charles Kelley, executive director of the Rhode Island Student Loan Authority, suggests refinancing. The authority, a state-based private nonprofit lender, offers loans and several low-cost refinancing options to Rhode Islanders and borrowers throughout the U.S.
Kelley says more borrowers have been exploring their refinancing options this year to save money and prepare for interest to start accruing on their federal loans again on Sept. 1 after sitting at 0% during the payment moratorium.
McNeil and Kelley also point out that students will soon have access to a simplified version of the Free Application for Federal Student Aid, or FASFA form.
The updated FASFA, which is the form college students use to apply for federal financial aid, will launch in December and apply to the class entering college in fall 2024. The changes are the first major redesign of the form in decades and are meant to provide a more user-friendly process with fewer questions and it will be simpler for applicants to import data from tax records.
The updated application will also expand eligibility for financial aid, a change that will likely benefit thousands of Rhode Islanders, including approximately 600 URI students, McNeil says.
However, the new form removes the “sibling discount,” meaning families with more than one child in school at the same time will qualify for less aid and students will have a much shorter window to apply for aid this year: with just weeks as opposed to a few months.
Overall, Kelley and McNeil say that as borrowers continue grappling with their loans, they should pay attention to their mail, explore the relief options available and speak with their financial aid counselors about any questions or concerns they have.
“We’re here to help,” McNeil said.
