Student loan repayments resume in May. How Wisconsinans Can Prepare

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When former President Donald Trump’s administration announced in March 2020 that student loan repayments were on hold due to the economic impact of the coronavirus, Mike Mathison and his family took full advantage of the pause.

The 36-year-old Sun Prairie man was paying about $325 a month on his remaining $50,000 in student loans. Until the federal repayment break, student loan repayment “took priority over most things,” he said, such as buying a new car or making improvements to his family’s home.

For the past two years, Mathison has not made any payments for his loans. Instead, he and his wife decided to use the money to buy a new car, send their daughter to summer camp, and build their savings account.

“We put (the money) in savings instead and just played a wait-and-see game,” Mathison said. “With (President Joe) Biden elected, the hope was that all or part of it would be forgiven. And until that was resolved or the payments started again, I just felt like that money could easily go to other places and things we need, but I don’t want to spend it and not have it later when I have to start paying again, if that happens.”

Mike Mathison, 36, of Sun Prairie, stopped paying off his student loans and decided to use the money to buy a new car for his family and grow his savings.

Mathison is among 715,800 Wisconsin residents who have student loan debt, according to the Student Success Through Applied Research Lab at the University of Wisconsin-Madison.

The average Wisconsin borrower has student loan debt of $32,230, for a combined total of $23.1 billion, according to SSTAR Lab. But compared to other states, student loan debt in Wisconsin is relatively low. Badger State ranks 45th in average debt per borrower in all 50 states, Puerto Rico and the District of Columbia, according to SSTAR Lab.

If you’re like Mathison and haven’t made any student loan payments since 2020, here are some things to keep in mind as your repayment deadline approaches.

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How to prepare for reimbursement

On March 20, 2020, the Federal Office of Student Aid announced that federal student loan payments would be suspended to help Americans who have been financially impacted by the COVID-19 pandemic. Throughout the duration of the pause, eligible loans did not accrue interest and collections on defaulted loans were halted.

President Joe Biden recently extended the pause until May 1, citing pandemic-related challenges facing student borrowers. The suspension was previously set to expire on January 31.

RELATED: Biden extends federal student loan payment break until May 1

Sarah Paulson, a Fox Valley-based certified financial planner, suggests those who haven’t repaid their loans look at their expenses and come up with a plan for how they’ll manage their money once repayment begins.

“As humans, we’re really, really good at spending as much as we earn, if not more,” Paulson said. “So you have to get back into this mode of, ‘I’m going to have to make this payment – on average – of $500. Where is this going to come from? We always like to think that we can just flip a switch, like, oh yeah, next month I won’t be buying as much from Amazon, from Target – name your guilty pleasure. But it’s a really, really hard to go back.”

Paulson also advises people to make sure their contact and banking information is up to date with their loan officers before repayment begins.

To prepare for reimbursement, Mike Fahey, 33, a Milwaukee resident and head coach of Concordia University’s men’s lacrosse team, plans to take a few extra hours behind the wheel for Uber. He also supplements his income by coaching for a club lacrosse program.

During the hiatus, Fahey still had to repay a loan from a private lender, but he stopped repaying his federal loans. He used the money he saved to buy a new car, he said.

Michael Fahey is the head coach of the Concordia University men's lacrosse team in Mequon.  The student loan repayment break gave him extra money to spend on buying a new car.

While it’s been nice to have extra money in his pocket the past two years, Fahey said he’s ready to start paying back his loans when the time comes.

“I grew up in a middle-class family,” he said. “It was always like, ingrained in my mind, you have to go to college, go to college, go to college. My family didn’t have the money to pay for a full college experience, so I knew I was going to have to take out loans.”

Upcoming repayment challenges

After more than two years of nonpayment of student loans, there are bound to be challenges that arise when repayment begins, said Nick Hillman, professor of educational leadership and policy analysis at UW-Madison and director of the SSTAR Lab. .

“Stopping something is very different from restarting it,” Hillman said. “It might be easy to stop or suspend payments, but now we’re getting to that point where we’re going to have to start them up again and that’s going to, I think, present a lot of stress tests for the student loan system.”

According to Hillman, the consensus of the policy and research communities is that student loan servicers have not done enough to prepare borrowers to begin repaying their loans. But repairers say they can’t plan ahead because the federal government keeps changing the refund date, Hillman said.

As Paulson advised, borrowers will need to ensure their information is correct and up to date. But people should also be aware that their loan managers might have changed. Two major loan servicers — Navient and FedLoan Servicing – announced last year that it was leaving the federal student loan servicing system. More than 14.5 million borrowers now have a different loan service than they had before the pandemic, Forbes reported.

Hillman also thinks some borrowers will struggle to go from paying nothing for two years to suddenly having to pay hundreds a month. People who graduated from college within the past two years may never have paid a student loan. He would like to see the government help people adjust to the system by putting in place progressive payment plans.

Another challenge concerns those who had not repaid their loans before the suspension of payments. There is no federal government policy specifically to help the 1 in 5 borrowers who were in default, Hillman said.

“It’s very likely that the people who had the most problems — the ones who had defaulted — once you get things going again, they could be in exactly the same situation as before the pandemic,” Hillman said. “And if that’s the case, it’s just a huge missed opportunity to really fix some of the worst case scenarios for our student loan system.”

What happens with loan forgiveness?

At this time, there are no plans for widespread and permanent loan forgiveness in the United States.

Biden has campaigned to cancel up to $10,000 in debt per borrower, but he doesn’t think doing so through an executive order would hold up in court. He has since said such action would have to come from Congress. Canceling $10,000 of debt per borrower would cost $377 billion, USA Today reported.

The permanent loan forgiveness “would be huge,” Paulson said, especially for millennials and Gen Z college graduates. It would give them the flexibility to focus on their future by buying a home or focusing on retirement savings, she said.

Sarah Paulson is a certified financial planner and owner of Valkyrie Financial.

Paulson favors the cancellation of student loans, but hopes it will be accompanied by a restructuring of the student loan system in the United States.

“It can’t be a one-time solution,” Paulson said. “There needs to be some sort of tuition adjustment or fixing or, at the very least, more financial education for these college-going students so they understand what they’re getting into. We can’t just solve the problem that we have now. We have to get back to the root causes. How did we get here and how are we going to avoid getting here? Otherwise, we’re just going to be on this hamster wheel of , ‘Okay, we have to forgive more money.’ Where is this going to come from?”

Mathison said he’s also in favor of canceling student loans, not just because he has loans himself, but because he thinks young people’s debt prevents them from pursuing other aspects. of the “American dream”, such as buying a house or starting a family.

Wisconsin Student Loan Workshop

The State of Wisconsin is hosting two free online workshops to help borrowers prepare for the end of the student loan payment pause.

The workshops will take place from 6:00 p.m. to 7:30 p.m. on January 20 and from 11:30 a.m. to 1:00 p.m. on January 21. Borrowers will learn about current student debt relief scams to avoid and how to use Free Wisconsin. Solid student loan repayment tool.

The workshops are hosted by the State Department of Financial Institutions and the Department of Agriculture, Commerce, and Consumer Protection.

To register for the workshop on January 20, click here.

To register for the January 21 workshop, click here.

Student borrowers can find more free repayment resources at LookForwardWI.gov.

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Contact Natalie Brophy at (715) 216-5452 or [email protected] Follow her on Twitter @brophy_natalie.

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