With student loan payments resuming in October after a three-year pandemic pause, Karen Sykes of Little Rock said she’s relieved by the creation of a new federal program that will significantly lower her payments and set an end date for settling her debt.
“There’s that light at the end of the tunnel,” she said.
Sykes is one of more than 38,000 Arkansans enrolled in the new Saving on A Valuable Education (SAVE) plan, an income-driven repayment program that calculates payments based on a borrower’s income and family size and forgives balances after a set number of years. The U.S. Department of Education estimates that most borrowers will save about $1,000 per year through the program.
After growing up in south Arkansas, Sykes headed north to the University of Arkansas, Fayetteville with the support of financial aid. When she took a break from school, it was years before she returned to finish her degree.
“Fayetteville’s where I always wanted to graduate from, and that’s where my heart was and is,” she said. “And so I decided to go back to college then and I did it. But by then I was older and that free ride was gone, so I just took out loans.”
Sykes earned a bachelor’s degree in environmental soil, water and science from the U of A and later a master’s in public administration from the University of Arkansas at Little Rock. While Sykes said her education made her a more well-rounded person, it also resulted in $92,000 in student loan debt.
“Because I didn’t want to go at that time shouldn’t mean that I have to have almost six figures in debt,” she said.
There were approximately 399,900 student loan borrowers in Arkansas with $13.4 billion in federal student loan debt as of June 30, according to the U.S. Department of Education.
Financial goals
About a year into studying marketing at the University of Utah, Dane Dickerson got married and said he took out loans to continue taking classes and support his new family. When he left school after three years to focus on a budding career, he had no degree but $19,000 in student debt.
Dickerson said he paid consistently for two years until the suspension of payments during the pandemic.
“It has not felt like a real loan balance since 2020 because apparently there’s no pressure to get much money back on it, and the attempts by the administration to forgive it gives the impression that they were not concerned about the balance either,” he said.
During the payment pause, the Utah transplant focused on other financial goals like reducing medical debt and saving to purchase a home, which he did in Conway last year. Dickerson said he moved to Arkansas to be closer to family and for the lower cost of living, among other things.
“Lots of people…have used the payment pause and then lower payments to make financial moves that they couldn’t have for years and years that most people think are a good thing,” Dickerson said. “Most people appreciate home ownership, moving to a place you want to be, starting a family, and if this plan cements those life changes for people and keeps making that possible, I think that’s a great thing.”
Dickerson has a three-year-old son and said he applied for the SAVE plan because it will lower his payments and provide flexibility to continue working toward financial goals made possible by the payment pause should his job situation or family size change.
The SAVE plan is “the safest bet” Dickerson said he could identify out of his current repayment options. Although he was supportive of the payment suspension and the student debt forgiveness plan, Dickerson said these initiatives are “an admission that this way of funding higher education has not been a success” and more needs to be done.
“It’s frustrating to see no further steps happen with that,” he said. “We have not reformed the student loan system. We haven’t reformed how we fund higher education. We’re not doing tuition assistance at a federal level that is not loans and I have less hope for this changing in a meaningful way as long as we’re still not willing to publicly fund public education.”
Debt forgiveness
In July, the White House announced that nearly 7,000 Arkansas residents with more than $342 million in student loans would see their remaining debt erased through fixes to mismanagement of the U.S. Department of Education’s income-driven repayment plans.
This initiative came after a Supreme Court decision in June to strike down the Biden administration’s student debt relief program that would have canceled up to $20,000 in student loan debt for some borrowers.
Since the beginning of the Biden-Harris administration in 2021, the Education Department has approved more than $116 billion in student loan forgiveness for more than 3.4 million borrowers.
Looking back, Sykes said she wishes she hadn’t taken out the loans, but felt like she had to at the time. Sykes said she’s responsible for repaying the loans — a “stressful, confining” bill — but questioned why the government can’t provide financial relief to students when it’s previously done so for large corporations.
“We bailed out the auto industry, we bailed out Wall Street, and so to me, this is the chance to do something for the working class,” she said.
Sykes owed about $130 a month prior to the pandemic and said that was expected to nearly double when payments resumed. Under the SAVE plan, her monthly payments will be reduced to $33. The single mother said the lower payments mean she’ll be able to help her son, a UA Little Rock freshman studying theatre, if needed.
Her son has scholarships, but should he need a loan, Sykes has cautioned him to only take what he needs.
Responsible borrowing
Borrowing as little as possible is the same advice provided by the Arkansas Student Loan Authority, a self-sustaining state entity created in 1977 by the Arkansas General Assembly that promotes access to and information about higher education funding.
ASLA provides college planning services, financial aid workshops, individual counseling, default management services to colleges and universities, and credit-based private student loans to Arkansans needing additional funding beyond the federal student loan program, Director Tony Williams said.
Students and their cosigners must meet credit score and debt-to-income ratio requirements, and ASLA charges interest rates that are typically 3% to 4% lower than national for-profit lenders, Williams said. ASLA also launched a new private student loan program during the pandemic.
“We saw a need to provide a non-federal student loan for borrowers who are currently paying high interest rates through for-profit national lenders,” he said. “We want students to borrow only when they absolutely must and to borrow at the most affordable interest rates possible.”
While federal loan officers are the ones primarily dealing with the resumption of payments in the federal loan program, ASLA provides counseling as needed to help borrowers make the right decisions, Williams said. During the payment suspension period, borrowers did not receive the best information, he said.
“At ASLA, we counseled borrowers to continue making payments during the pause or to save their monthly payments until the pause ended,” Williams said. “The pause was a prime opportunity to reduce your loan balance without paying interest; unfortunately, the federal government did not seem to convey this message to borrowers.”
With the creation of the SAVE plan, Williams said there’s concern that students will be more likely to increase borrowing because they think they won’t have to pay it back, and that can be a risky position to put borrowers in.
“SAVE will make student loan borrowing affordable to the point that it removes much of the incentive for students to make wise borrowing decisions,” he said. “Federal student loan borrowing is bound to increase to new heights under the SAVE plan. The cost to taxpayers is another variable that should not be ignored.”
An analysis from the University of Pennsylvania estimates the SAVE plan will cost $475 billion over the next decade.
Williams said people should borrow as little as possible and pay it off quickly to limit interest expenses. The federal government offers several repayment options and Williams recommended using the Federal Student Aid Loan Simulator to help people determine their best options.
