HerMoney with Jean Chatzky: Episode Summary
Episode Title: Worried About Your Student Loans? The Steps To Take NOW
Release Date: May 14, 2025
In this insightful episode of HerMoney with Jean Chatzky, Jean delves deep into the pressing issue of student loan repayments, especially in light of recent policy changes reinstating collections on defaulted federal student loans. Joining her is Jillian Berman, assistant managing editor for news and enterprise at MarketWatch and author of the book Sunk Cost: Who's to Blame for the Nation's Broken Student Loan System and How to Fix It? Together, they navigate the complexities of the current student loan landscape, offering listeners valuable advice and clarity.
1. Resumption of Student Loan Collections
Overview of Recent Changes
At the episode's outset, Jean highlights a significant policy shift: the Trump administration has officially restarted the collection of defaulted federal student loans, ending a five-year pause that began during the pandemic. This move signals the return of stringent consequences for those who have fallen behind on their repayments.
Jillian's Insight (00:22 - 05:39)
Jillian clarifies that the resumption targets borrowers who were already in default before the pandemic pause, numbering around 5 million. These individuals face severe repercussions such as wage garnishment, reduced Social Security benefits, and negative impacts on credit scores. Additionally, another 4 million borrowers are at risk of defaulting as payments resume, potentially leading to a further wave of defaults.
“There’s about 5 million borrowers who were all likely in default before the pandemic and will now face consequences like wage garnishment and Social Security offsets.” — Jillian Berman [05:39]
2. Understanding Loan Status
Checking Your Loan Status
Jean emphasizes the importance of borrowers understanding their current loan status to take appropriate action. Jillian provides a breakdown of the different states of federal student loans:
- Default: Occurs after failing to make payments for over nine months. Affected borrowers face severe consequences.
- Delinquency: When payments are about three months behind, leading to potential credit score impacts.
- Forbearance: A temporary pause on payments, protecting borrowers from default consequences.
- Deferment: Similar to forbearance, offering temporary relief.
- Grace Period: A six-month period post-graduation before repayment begins.
Action Steps for Borrowers (06:46 - 09:30)
For those in default, Jillian advises contacting the Default Resolution Group to explore rehabilitation or consolidation options. Borrowers who are delinquent but not yet in default should reach out to their loan servicers to establish an affordable repayment plan, typically through income-driven repayment programs.
“If you’re delinquent or you know you’re behind, but you’re not yet in default, you should call your student loan servicer and try to get into an affordable repayment plan.” — Jillian Berman [08:41]
3. Income-Driven Repayment Plans and the SAVE Program
Current Status and Challenges
Jean brings up the SAVE program, an income-driven repayment (IDR) plan introduced by the Biden administration, which aimed to reduce monthly payments and expedite debt forgiveness. However, Jillian explains that the SAVE program is currently entangled in litigation, leading to uncertainties and processing backlogs.
“The Save program is currently mired in litigation and has been temporarily blocked by federal court.” — Jillian Berman [10:08]
Future Prospects and Republican Initiatives (11:16 - 12:56)
Jillian discusses the Trump administration's efforts to introduce its version of IDR through regulatory rulemaking and congressional proposals. While these initiatives are in progress, Jillian advises borrowers to apply for existing repayment plans to secure temporary forbearance and avoid penalties.
4. Impact on Borrowers and Financial Adjustments
Adjusting to Repayments
With the resumption of payments, Jean observes that many borrowers, especially recent graduates, are now having to incorporate student loan repayments into their monthly budgets—something they could postpone during the payment pause.
Borrower Experiences (13:24 - 14:23)
Jillian notes that while some borrowers have used the payment pause to pay down other debts or save, many are now grappling with the logistics of managing repayments. This shift requires diligent communication with loan servicers to establish manageable payment plans.
5. Consequences of Default and Avoidance Strategies
Understanding Wage Garnishment and Tax Offsets
Jean highlights the severe consequences faced by defaulted borrowers, including wage garnishment and tax refund seizures. Jillian emphasizes the importance of timely action upon receiving notices to prevent these outcomes.
“If you get a notice, then you should try to contact the default resolution group and do what you can to rehabilitate your loan out of default.” — Jillian Berman [14:23]
6. The Broken Student Loan System: Insights from Sunk Cost
Historical Context and Systemic Issues
Jillian provides a comprehensive analysis of the student loan system's evolution in her book. She attributes the system's current dysfunction to multiple factors, including reduced state funding for public colleges, rising tuition costs, and ineffective loan servicing practices. The Great Recession further exacerbated these issues, leaving many borrowers with unmanageable debt and stagnant wages.
“The design of the system really allowed for all these different interests to come in and try to get what they could out of it, rather than being in the best interest of borrowers and taxpayers.” — Jillian Berman [16:10]
Value of Higher Education and Changing Perceptions (17:50 - 23:08)
The discussion shifts to the return on investment (ROI) of a college education. While traditionally seen as valuable, the high cost and burden of student debt have led to increased scrutiny. Jillian notes a growing trend where students and families are reassessing the necessity of college, considering alternatives like vocational training and certificate programs. However, she also warns that certain fields still justify the expense due to necessary qualifications and higher earning potentials.
7. Long-Term Effects of Student Debt
Impact on Life Decisions and Retirement (20:07 - 26:45)
Jillian explores how student debt influences critical life choices such as homeownership, marriage, and starting a family. She points out that significant portions of student debt are now held by individuals over 50, often due to parent plus loans or returning to education later in life. These debts can persist into retirement, affecting financial stability and long-term planning.
“The debt can affect life decisions... these debts just really can affect young people's trajectory and the way they think about their households and their budgets.” — Jillian Berman [20:37]
8. Future of Student Loan Policy Amid Economic Uncertainty
Potential Policy Shifts During a Recession
Jean raises the possibility of an economic recession and its potential impact on student loan policies. Jillian suggests that while recessions typically lead to policy adjustments to aid struggling borrowers, the current political climate under the Trump administration might influence the nature of these changes differently compared to previous administrations.
“If we do end up in a recession, it is likely we’ll see people struggling more with their student loans... The Trump administration probably has a different view on how they should approach repayment.” — Jillian Berman [29:15]
9. Long-Term Solutions for a Sustainable Student Loan System
Proposed Reforms
In closing, Jillian outlines several long-term solutions to mend the broken student loan system:
- Reducing the Cost of Public Colleges: Making higher education more affordable or even free, thereby lessening the financial burden on students.
- Reforming Repayment Consequences: Adjusting policies to hold borrowers accountable without imposing excessively harsh penalties that hinder repayment.
- Enhancing Policy Support: Encouraging lawmakers to prioritize student loan reforms that benefit both borrowers and the broader economy.
“Bringing the cost of public college down is essential... We need to hold people accountable for the debt, but not with these really intense consequences that can be counterintuitive to actually repaying the loans.” — Jillian Berman [32:15]
Conclusion
This episode of HerMoney provides a thorough examination of the current state of federal student loans, the challenges borrowers face with the recent resumption of debt collections, and the broader implications of student debt on personal finances and societal structures. Jean Chatzky and Jillian Berman offer valuable insights and actionable advice for listeners navigating these turbulent financial waters, emphasizing the need for informed decision-making and strategic planning in managing student loan obligations.
For those seeking further information, Jillian Berman can be reached at @marketwatch.com, and her book Sunk Cost offers an in-depth exploration of the student loan crisis.