Student loan payments have been suspended for 2 years. With the restart of repayments looming, here's what Wisconsinites can do to prepare.
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When former President Donald Trump's administration announced in March 2020 that student loan payments were suspended 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 had been paying around $325 a month on his remaining $50,000 in student loans. Until the federal repayment pause, student loan payment "took priority over most things," he said, like getting a new car or making upgrades to his family's home.
For the past two years, Mathison has not made any payments toward his loans. Instead, he and his wife decided to use that money to buy a new car, send their daughter to summer camp and build up their savings account.
"We've been putting (the money) in savings instead and just kind of playing a wait-and-see game," Mathison said. "With (President Joe) Biden getting elected, the hope was that some or all of it would be forgiven. And until that gets resolved or the payments start 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 then not have it later on when I have to start paying again, if that happens."
Mathison is among the 715,800 Wisconsinites who have student loan debt, according to University of Wisconsin-Madison’s Student Success Through Applied Research Lab.
The average Wisconsin borrower has $32,230 in student loan debt, for a total of $23.1 billion combined, according to the SSTAR Lab. But compared to other states, student loan debt is Wisconsin is relatively low. The Badger State ranks 45th in average debt per borrower across all 50 states, Puerto Rico, and the District of Columbia, according to the SSTAR Lab.
If you're like Mathison and haven't made any payment toward your student loans since 2020, here's some things to keep in mind as the repayment deadline approaches.
How to prepare for repayment
On March 20, 2020, the Federal Student Aid Office announced federal student loan payments would be suspended to help Americans who were impacted financially by the COVID-19 pandemic. Over the life of the pause, eligible loans have not accrued interest and collections on defaulted loans were stopped.
President Joe Biden recently extended the pause to May 1, citing ongoing pandemic-related challenges faced by student loan borrowers. The suspension was previously scheduled to expire on Jan. 31.
RELATED: Biden extends federal student loan payment pause through May 1
Fox Valley-based certified financial planner Sarah Paulson suggests those who haven't been paying their loans take a look at their spending and make a plan for how they're going to manage their money once repayment starts.
"As humans, we are really, really good at spending as much as we make, if not more," Paulson said. "So you have to get yourself back into that mode of, 'I'm going to have to make this — on average — $500 payment.' Where's that going to come from? We always like to think that we can just flip a switch, like, oh yeah, next month I'm not going to buy as much from Amazon, from Target — name your guilty pleasure. But it's a really, really hard thing to go back to."
Paulson also advises people make sure their contact and banking information is up-to-date with their loan servicers before repayment begins.
To prepare for repayment, Milwaukee resident Mike Fahey, 33, the head coach of Concordia University's men's lacrosse team, plans to pick up some more hours driving for Uber. He also supplements his income by coaching for a club lacrosse program.
During the pause, Fahey still had to pay a loan from a private lender, but he stopped making payments on his federal loans. He used the money he's saved to buy a new car, he said.
While it's been nice to have extra money in his pocket the past two years, Fahey said he's ready to begin paying his loans again when the time comes.
"I grew up in, like, a middle class family," he said. "It was always like, ingrained in my mind that 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 knew I was gonna have to take loans out."
Repayment challenges ahead
After more than two years of not paying student loans, there are bound to be challenges that arise when repayment starts, said Nick Hillman, a professor of educational leadership and policy analysis at UW-Madison and director of the SSTAR Lab.
"Shutting something down is very different than starting it back up," Hillman said. "It might be easy to shut down or to pause payments, but we're now getting to that point where we're gonna have to kick them back on and it's going to, I think, present a lot of stress tests for the student loan system."
According to Hillman, the consensus from the policy and research communities is that student loan servicers have not done enough to prepare borrowers to begin repaying their loans. But servicers say they can't plan ahead because the federal government keeps changing the repayment date, Hillman said.
Like Paulson advised, borrowers are going to have to make sure their information is correct and current. But people also need to be aware that their loan servicers could have changed. Two major loan servicers — Navient and FedLoan Servicing — announced last year that they are leaving the federal student loan servicing system. More than 14.5 million borrowers now have a different loan servicer than they did before the pandemic, Forbes reported.
Hillman also thinks some borrowers will have trouble going from paying nothing for two years to all of a sudden having to pay hundreds a month. People who graduated from college in the past couple years may have never made a student loan payment. He'd like to see the government help people ease into the system by setting up gradual payment plans.
Another challenge has to do with those who had defaulted on their loans before payments were suspended. There's 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 used to be in the most trouble — those who had defaulted — once you kick things back on, they might find themselves in the exact same situation they were in before the pandemic," Hillman said. "And if that's the case, that's just a huge missed opportunity for really resolving some of the worst case scenarios of our student loan system."
What's going on with loan forgiveness?
Currently, there are no plans for widespread, permanent loan forgiveness in the U.S.
Biden campaigned on forgiving up to $10,000 in debt per borrower, but he doesn't believe doing so through an executive order would hold up in court. He has since said any such action would have to come from Congress. Forgiving $10,000 in debt per borrower would cost $377 billion, USA Today reported.
Permanent loan forgiveness "would be huge," Paulson said, especially for Millennial and Generation Z college graduates. It would give them the option to focus on their futures by buying a house or focusing on retirement savings, she said.
Paulson is in support of student loan forgiveness but hopes that it would be accompanied by a restructuring of the student loan system in the U.S.
"It can't be a one-time fix," Paulson said. "There has to be some kind of tuition adjustment or fixing or, at bare minimum, more financial education for these students that are going into college so they do understand what they're getting themselves into. We can't just fix the problem that we have now. We have to go back to the root causes. How did we get here and how are we going to avoid getting here? Otherwise, we're just gonna be on that hamster wheel of, 'Okay, we need to forgive more money.' Where's that gonna come from?"
Mathison said he's also in support of student loan forgiveness, not just because he has loans himself, but because he thinks the debt young people are saddled with is preventing 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 the end of the student loan payment pause.
The workshops will take place from 6 p.m. to 7:30 p.m. on Jan. 20 and from 11:30 a.m. to 1 p.m. on Jan. 21. Borrowers will learn about current student loan debt relief scams to avoid and how to use the free Wisconsin Strong Student Loan Repayment Tool.
The workshops are hosted by the state Department of Financial Institutions and the Department of Agriculture, Trade and Consumer Protection.
To register for the Jan. 20 workshop, click here.
To register for the Jan. 21 workshop, click here.
Student loan borrowers can find more free repayment resources at LookForwardWI.gov.
RELATED: Drop out or drown in debt? Many Black students in Wisconsin face stark choices in paying for college
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Contact Natalie Brophy at (715) 216-5452 or nbrophy@gannett.com. Follow her on Twitter @brophy_natalie.
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This article originally appeared on Appleton Post-Crescent: Student loans repayments resume in May. How Wisconsinites can prepare
