In the wake of last week’s $1.85 billion settlement between student-loan servicer Navient and attorneys general across the country, some financial aid officials at local colleges are hopeful that the process of paying back student loans may become easier.

Navient agreed to pay to resolve allegations of unfair practices, particularly those associated with issuing subprime, private loans and directing borrowers into forbearances that accumulated more debt.

In the state of Pennsylvania, approximately 13,000 borrowers will receive $3.5 million in restitution payments, and 2,467 more will receive $67 million in student debt cancellation as a result of the settlement.

“My hope is that it will make it easier, better and smoother for repayment,” said Alyssa Dobson, director of financial aid and scholarships at Slippery Rock University. “The loan servicers, other than tracking loan balances during their educational time when they're in school, their largest duty is to get (students) through to repayment. I'm really hoping that this focus will get better practices in place and make it easier and less confusing, and hopefully the students get the best servicing that they can.”

Using income-driven repayment options can help students keep up with their loans, but Navient pushed forbearances instead of income-driven repayment options, which can lead to students racking up interest.

“The best (plan) when a student is struggling to make their payments would be an income-driven repayment plan,” Dobson explained. “They are tailored to your income, and they can calculate out to be a zero-dollar payment. If you are really struggling, maybe going through a health issue or unemployment, that can be helpful. Whatever the issue is that makes your income reduced, the income-driven repayment can be changed for that event.”

Both income-driven options and forbearances delay repayment. However, Dobson said, forbearances were faster for the servicer, but more expensive for the borrower.

“At the cost of student loan balances rising, (borrowers) weren’t counseled properly,” she said. “Before a student chooses a forbearance, they really should at least explore the income-driven repayment options. Forbearance still might be the best option, but not always.”

Learning the language of loans

To keep up with the terminology and specifics around student loans, Dobson recommended that students complete and pay attention to the entrance and exit counseling they are required to complete through the federal student loan program.

“Parents often, too often, complete those requirements for the student, and the student is lost completely in the dark regarding their options,” she said. “A really good way to keep these terms fresh is to do this every year, even though it’s not required.”

Dobson said the impacts for students who receive restitution or cancellation from the settlement could be substantial.

“Some borrowers might be at the allowable aggregate maximum (limit), and after some of their loans get canceled or forgiven, they might be able to borrow federal loans again,” she said.

Financial literacy

At Butler County Community College, director of financial aid Julianne Louttit teaches students financial literacy through an elective class.

“I do a whole section in financial literacy on understanding the student loan program, and on understanding award offers from colleges,” she said. “It’s understanding what do they actually have to play for tuition, ‘what does my award offer show, what is a loan I have to pay back,’ and breaking it all down for them.”

Her advice also reaches high school students.

“Over the many years, I have had the opportunity to go into our local high schools,” she said, although the program was temporarily paused during COVID-19. “It’s kind of great for them to know, before they start borrowing from the student loan program, how to understand it.”

BC3 interacts less with student loans because of its lower tuition, she said, but still offers counseling about loans.

“Financial literacy goes over a lot – understanding, for instance, ‘is it wise to choose a college that is going to put you $60,000 in loan debt?’” she said. “Where can we help those costs, so that you can graduate, if not debt free, but how can we make that manageable, that’s that financial literacy piece ... if they can get that and understand it and make those smart choices, that would help.”