“student Loan Repayment Challenges For Low-income Borrowers” – In a 2019 poll by opinion and market research firm SSRS for The Pew Charitable Trusts, 7 in 10 Americans said taking out student loans is a smart choice given the benefits of a college degree, but 89 percent also expressed concerns about people’s viability. the ability to repay these debts. And they have reason to worry: Nearly 20 percent of the nation’s 43 million federal student loan borrowers are in default — usually defined as at least 270 days without payments — and millions more are behind on their payments.

Research has provided insight into the characteristics of borrowers who have the most difficulty repaying student loans, but less is known about why they struggle and their personal experiences with the repayment process. This knowledge gap makes it difficult for policymakers to fully understand why some people successfully navigate the repayment system while others fall off track, or to easily identify which current policies may not be working as intended and which reforms are needed to better support borrowers. .

“student Loan Repayment Challenges For Low-income Borrowers”

This report seeks to illuminate these issues by analyzing responses from 16 focus groups that Pew conducted in late 2018 and early 2019 in eight cities with more than 150 student loan borrowers. The researchers divided the participants into four categories based on self-esteem. provided information about their repayment experience (see “About the Analysis” and Appendix B for more information): People who were on time to repay their student loans; those who were not on track with repayment, regardless of the size of their balance (general, deviating); those who were off track with a balance of $40,000 or more (high balance, off track); and people who were current and had a balance of $10,000 or less (low balance, off track). The research team conducted four focus groups with each borrower category.

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Taken together, these focus groups indicate that many participants found it difficult to navigate the repayment system, experienced multiple problems repaying their loans, and were unable to obtain or access quick and lasting relief, particularly when they were financially challenged. under stress. Borrowers in these groups experienced some anxiety and frustration about their balances. For example, they felt they couldn’t keep up with their payments and were forced to make difficult compromises to manage their finances. Those who struggled to find longer-term solutions turned instead to shorter-term solutions.

As the student loan repayment system comes under pressure as more borrowers experience repayment problems, focus group insights into the barriers borrowers face should provide important guidance to federal policymakers in reforming the higher education financing system. These findings, combined with existing quantitative data, suggest four actions that the US Department of Education and Congress could take to facilitate successful repayment:

U.S. student loan borrowers face significant challenges as they navigate the complexities of the repayment system, including defaults, delinquencies and mounting balances. The purpose of this report is to help clarify specific points where borrowers are struggling and to identify actions policymakers can take to promote successful repayment for the millions of Americans with student debt.

Between December 2018 and January 2019, Pew conducted 16 focus groups with 152 borrowers in eight cities — Alexandria, Virginia; Detroit; Kansas City, Missouri; Memphis, Tennessee; Miami; Phoenix; Portland, Maine; and Seattle. The researchers divided the participants into four somewhat overlapping categories based on the data they reported on their repayment experiences (see Figure 1 and Appendix B):

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The researchers conducted four focus groups with each category of borrowers. The goal of the focus groups with on-track and general, off-track borrowers was to better understand why some people navigate the repayment system successfully, while others fall off the track.

And even people who make payments on time sometimes have negative financial outcomes, such as growing loan balances that result from payments that don’t keep up with the interest that accrues and capitalizes on those loans.

(While many borrowers experience the financial burden of growing balances, those with high balances often feel it acutely, even if they avoid default.) So Pew conducted focus groups with borrowers with high and low balances to get better results. understand the different realities of these groups.

“On-track” and “off-track” are names the researchers assigned to the categories based on borrowers’ responses to questions in the screening guide and to facilitate communication of the study’s results. However, these names do not cover all borrower repayment experiences. For example, some borrowers in follow-up focus groups indicated that they were or had been in arrears on their loans and had difficulty repaying them, and several non-group borrowers indicated that some aspects of the repayment system worked well for them.

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This report highlights borrowers’ own words using borrower quotes, some of which may indicate a misunderstanding of the repayment process. In addition, many focus group participants used the terms “perseverance” and “patience” interchangeably, so they are also used interchangeably in this report. Additional quotes are available in Appendix A.

Most federal student loans are administered by third-party companies called servicers. These companies are expected to perform functions such as collecting payments and assisting borrowers in choosing a repayment plan and providing access to stop payment tools in accordance with federal rules, regulations and guidelines.

Borrowers who graduate, drop below half a place, or drop out of school automatically receive a six-month grace period before their first payments are due.

If they don’t choose another plan, borrowers begin repayment under the standard repayment plan, which has fixed payments over a 10-year period, so that borrowers repay their loans in full over the course of that period, as long as payments are made in full on time.

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If eligible, borrowers can enroll in other plans that lower monthly payments or extend the repayment period, but these plans may increase the interest accrued and therefore the amount repaid over the life of the loan.

Graduated Plan: This program allows borrowers to initially make lower monthly payments than a regular plan, but the payment amount increases every two years for 10 years, so borrowers pay all principal and interest over that period when payments are made. in full and on time.

Advanced Plan: Borrowers with balances over $30,000 can enroll in Extended or Advanced Graduate Plans, which are modified versions of the Standard and Graduated plans that generally support repayment over 25 years.

Income-based plans: These plans have monthly payments calculated based on the borrower’s income and family size, which must be reconfirmed annually.

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Congress has authorized the Department of Education to forgive any remaining balance after 20 or 25 years of qualifying payments.

A set of tools called deferral and forbearance is available to support borrowers who need to delay or stop their payments. Eligible borrowers include those who are in school at least half-time, unemployed, disabled, serving in the military or experiencing financial hardship.

Deferment: Borrowers with certain types of loans may be able to stop their payments and avoid accruing interest during the deferment period.

Most borrowers who use deferment do so while in school or because of financial difficulties such as unemployment.

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Forbearance: interest-suspended loans generally accrue interest. Borrowers can choose discretionary escrow, typically offered during periods of economic hardship, or mandatory benefits by their servicers. Servicers can apply for subsidies when processing income-based repayments and other loan-related applications, or for borrowers to submit required documents. In addition to suspending future payments, forbearance can be applied retroactively to make arrears current so borrowers can enroll in income-based plans, for example.

Borrowers who qualify for deferment or repayment can typically defer their payments for up to a year (although some borrowers use these tools for shorter periods) and up to three years using any type of facility.

For certain types of deferrals and multiple arrears, when the suspension period ends, the unpaid interest on the loan is capitalized—that is, it is added to the principal and increases the amount that is taxable with interest.

(For more information on interest accrual and capitalization, see “How does interest accrue and capitalize on a federal student loan?”.)

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If borrowers don’t make payments, they default on their loans, and if they go 270 days without a payment, they default.

Student loan delinquencies are usually reported to the national credit bureaus after 90 days of nonpayment. Most loans today have a servicer maturity of 271-360 days. The loans are then transferred back to the Ministry of Education, which generally assigns them to a private collection agency. Borrowers can make payments during the transfer period to avoid being sent to collections.

Additionally, and unlike most other types of debt, federal student loans accrue interest while in default and are rarely discharged in bankruptcy.

In addition to servicers, several entities can contact borrowers about their federal student loans when they are in repayments. For example, those whose loans were made before 2010 (when the Department of Education got

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