Over the past seven years Celly Ifonlaja has pursued college on and off, he’s survived mostly on borrowed money.
The 25-year-old is a “super senior” studying finance at Metropolitan State University in St. Paul. He works four jobs to afford his tuition: he bartends at Target Field, teaches at the Science Museum of Minnesota, serves as a student senate representative at school and works as a community board member for a local nonprofit.
But even with four jobs, Ifonlaja still has had to take out around $60,000 in federal student loans.
“I had to take out loans just to survive,” he said. “If I had no money, if I wanted to eat, I had to borrow the money. If I wanted to pay my landlord, I had to borrow the money.”
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At the end of this year, he’s looking forward to graduating from Metro State. But with the student loan repayment date looming in October, he worries about how long it will take to save up for a house.
“I need to just reduce my financial risk, the risk of having these loans, paying for rent and finding a spot that's affordable but also conducive to my growth and everything that I got going on,” said Ifonlaja.
In late June, the U.S. Supreme Court struck down President Joe Biden’s student loan forgiveness program which sought to cancel up to $10,000 for the vast majority of borrowers and up to $20,000 for Pell Grant recipients. The program as it was initially proposed would have reached more than 40 million borrowers and wiped away the balances of about 20 million.
That means Ifonlaja and over 775,000 people in Minnesota will have to start making payments on their loans after a three-year pause. In total, Minnesotans owe about $29.1 billion in student loans, according to the Minnesota Attorney General’s Office.
“Interest will start accruing September 1st and then payments will start resuming in October,” said Kim Miller, financial counselor at LSS Financial Counseling in St. Paul. “Borrowers should start seeing notices from their loan servicers at least 21 days before their payment is due.”
Loan servicer changes cause confusion for millions of borrowers
In the past few months as it has become clear payments would be resuming soon, more and more people have been calling Kim Miller with questions: Since payment options have changed, what will my payment be? Which option is best for me? Is my payment really going to be affordable?
The confusion has played out in different ways for borrowers across the state. Some have noticed their loan servicer has changed. In 2021, three large loan servicers (Navient, the Pennsylvania Higher Education Assistance Agency and Granite State) announced they would stop managing federal student loan debt.
Between the three servicers, millions of borrowers have been switched to a new loan servicer.
“Who they were paying for in the past changed and so now they have to create all new accounts and setups and figure out who they need to set up payments with,” said Kim Miller.
Jena Miller is one of those people who’s noticed her loans have been transferred. But it’s been unclear to her how much of her loans are already paid off.
“They keep getting passed on to different servicers, even though they are federal loans,” said Jena Miller, who estimates she owes $42,000 in loans that date back to 1995. “When I go to look at my history there is none. They literally just got moved with all this stuff happening. So it’s like, how am I supposed to know what I’ve paid?”
Jena Miller, 47, lives in northeast Minneapolis and is full-time staff accountant with two jobs on the side. She’s been making payments on her loans pretty regularly, but has bounced between deferring for some time and going back into repayment. Since the pandemic began, Miller said she’s only made two payments. The debt is a burden.
“It’s deterred me from ever buying a house,” said Miller. “It prevents me from doing any sort of major travel outside of the U.S. Having to settle for smaller apartments or less expensive apartments.”
$20,000 in debt and ‘nothing to show for it’
According to the Education Data Initiative, one out of every 10 Americans has defaulted on a student loan. One in five borrowers have risk factors that suggest they could struggle with loan payments once they resume in October.
Some who are struggling financially know they are likely to miss loan payments and default on their loans, which has major impacts on financial health. Arion Flancher, 44, is a full-time Lyft and rideshare driver who lives in St. Paul and owes a little over $20,000 in student loans, some dating as far back as 2003 and most recently 2018.
The loans come from Flancher’s three attempts to put himself through college for electrical engineering and live sound engineering. He said there were multiple times that a personal tragedy forced him to leave school.
“I really have nothing to show for it,” he said. “I really feel like I got a raw deal in a lot of ways.”
Although he’s been in payment programs, Flancher has struggled to pay back his loans. And his credit score has tanked since 2010.
“Every time they go into default or I miss payments, it dips way down,” said Flancher.
Flancher admits there are other factors that may be lowering his credit score, but his student loans still pose a major barrier for him in his daily life. For example, when his car was totaled in a crash while he was driving for Lyft, he put off buying another one.
“It's become something that I just have accepted as part of my reality at this point,” Flancher said of his debt.
Fresh Start helps borrowers get out of default, clear credit report
Flancher has also faced instances in which his federal tax return was seized because he was in default on his loan, an experience he said was surprising and difficult. But there’s good news: Flancher is one of 7.5 million default borrowers who qualify for Fresh Start, a new federal program that will help people get student loans out of default quickly.
According to Kim Miller, it’s one of the “biggest exciting changes out there for people who were in default due to nonpayment prior to March of 2020.” Prior to the payment pause during the pandemic, Miller said people who were in student loan default were facing debt collection and having their federal tax refund, wages or social security taken from them.
Borrowers in default either had the option to consolidate their loans or rehabilitate an existing loan through a nine-month payment plan. And they only had two chances to get their loans out of default.
“For many, what happened in the previous process was that there were a lot of opportunities to slip through the cracks,” said Kim Miller. “Number one, it’s hard to make that phone call to begin with and ask for help with a debt collector. They required sometimes a lot of information, tax information, because a lot of times they went into income-driven repayment. So then they really had to provide a lot of information to prove that they needed a lower payment plan to make it more affordable.”
Those extra steps can be overwhelming for many default borrowers, which keep them in a cycle of default. Some fail to set up repayment plans after getting their loans out of default.
For Flancher, who was automatically put in forbearance after defaulting multiple times, the “hate mail,” phone calls and emails he’s received are exhausting to keep up with.
“It’s nerve-wracking. They’re long calls,” said Flancher of the times he’s called his loan servicer. “I was about one step away from getting my wages garnished.”
Now with Fresh Start, borrowers like Flancher can get a one-time adjustment on their income-driven repayment account with one phone call to the debt collector.
“This one-time, income-driven repayment account adjustment counts long periods of deferment or forbearance, because they realize that loan servicers shove people into deferment and forbearance because it was easier than setting up the $0 income-driven repayment plan,” said Kim Miller.
Defaulted loans will be transferred to a regular loan servicer automatically and returned to payment status so the borrower can still be eligible for federal student aid in the future.
“The record of the default is removed from their credit report,” said Miller. “So it really legitimately is a fresh start for a lot of those borrowers, because in the past to get your loans out of default, it was a complicated process to manage.”
Recent college grad says repayments limit career prospects
A whole slew of new borrowers who recently graduated are making payments for the first time in October, like Emma Zellmer.
She recently graduated from Minnesota State University, Mankato with about $7,000 in federal debt.
“I was lucky to be able to take out loans from my parents so those obviously aren’t accruing interest right now,” said Zellmer. “But even with the $7,000 in federal loans, I am narrowing what I’d be able to do in my career now.”
Zellmer’s original plan after graduation was getting a job in Washington, D.C., at a senator’s or representative’s office. But once she started researching starting salaries in her career and what her loan repayment plan looked like, Zellmer realized she wouldn’t be making enough to cover her living expenses and pay back her loans, too.
She’s currently interning in D.C., but her plan is to move back to Minnesota and live with her parents to save up money for graduate school.
“It’s really limited my job opportunities, being able to plan for the future with having to repay my loans while also having to save for grad school and be able to create a savings account so I can, one day, buy a home and start a family,” said Zellmer.
Last month, President Joe Biden announced a new income-driven repayment plan called SAVE, which would cut many borrowers’ monthly payments to zero and forgive remaining balances after a certain number of years. The plan calculates payments based on a borrower’s income and household size.
An estimated 20 million could benefit from the SAVE plan, according to the Biden Administration.
“The majority of the people will find that the SAVE plan will provide them with their lowest income-driven repayment option if they were to look at them,” said Kim Miller. For example, a single person making $35,000 a year will likely have a monthly loan payment of just $18, she said.
Depending on the loan, a borrower might have to consolidate their loans into a “direct consolidation loan” to get access to SAVE. The SAVE plan also takes inflation into consideration, since they use a higher percentage of the poverty level (225 percent) to calculate payments for borrowers.
“I do feel like this SAVE plan now using 225 percent of the poverty level does give borrowers more money for their daily needs,” said Kim Miller. “And so less of it is used then to go towards student loan repayment, which that's why, you know, for the majority of borrowers, they will find that to be much lower than what was offered to them before.”
Where to start with student loans?
Miller advises borrowers start with the federal student loan website, studentaid.gov. It’s a “one-stop shop” of information on managing student loans.
“It also provides all of their loan history. It has a dashboard that shows their loan balances, individual loans, who their loan servicer is, the payment plan they may or may not be enrolled in,” said Miller.
In the coming weeks as people wait to receive bills from their loan servicers, Miller recommends guesstimating what repayments are going to look like so borrowers can save in advance and plan ahead.
The website has useful tools that predict monthly payments and loan consolidations, like the loan simulator and consolidation tool. It also has information about the different types of payment plans and loan forgiveness after a certain number of years.
It’s worth exploring the new options. More borrowers can qualify for forgiveness cancellation or discharge programs that they may not have been eligible for before, according to Kim Miller.
“One example is if you currently work for a governmental or nonprofit organization, you may now qualify for public service loan forgiveness,” said Kim Miller.
She said the main myth she’s been debunking over the past 1.5 years is that almost no one qualifies for public service loan forgiveness, but she said much has changed and people should try again.
While it’s a time of confusion and stress for borrowers, it also can be a time of opportunity and even relief. Jena Miller, who was initially confused about her loan servicer changing, was shocked to get a letter in the mail on Aug. 16 saying her loans had been forgiven.
“I didn't think it was real, even though, you know, I was logged into my lender portal and it was clear,” she said. “I just kept looking it over and just showed a zero balance, and I printed it out and I just kept reading it.”
Her servicer said that because she had been making payments for 20 years, her loan were forgiven.
“I've been able to come up with a down payment with the cat sitting that I've done in the last month or two. So I have the down payment for my car,” she said. “I'm just so grateful."