Federal student loan payments are set to resume on October 1 with interest already accruing for borrowers in September. U.S. Under Secretary of Education James Kvaal joins Yahoo Finance Live to share the list of federal programs that will aid Americans in paying off their student debt, including President Biden's SAVE plan.
"College costs now [are] not just an issue for a student but it's an issue for their families," Kvaal notes. "Oftentimes, people who are still repaying their student loans are struggling to pay for their children's education, struggling to start a business or start a home, so this really is an issue... that affects families and communities and really the economy as a whole."
Kvaal also goes into detail about updates to FAFSA applications and the challenges that put borrowers at risk of defaulting on their loans.
Click here to watch more of Yahoo Finance's special coverage "Student Loans: Smarter Strategies."
JULIE HYMAN: Federal student loan payments are set to resume on October 1 after a three-year pause. Interest on these loans already began accruing at the beginning of the month. And millions of Americans are looking for some relief as they face years of payments and thousands of dollars of debt.
Joining us now, United States Undersecretary of Education James Kvaal and Yahoo Finance's reporter Ronda Lee, who covers this very closely. So, Mr. Undersecretary, as we look at this repayments finally beginning once again, what do debtors need to know? What do people need to be aware of?
JAMES KVAAL: Well, Congress did end the student loan payment pause. Bills will be going out as payments are due in October. And we're really encouraging people to take a look at all of the affordable repayment options.
We've created the SAVE Plan, which is the most affordable repayment plan ever. We already have 4 million people in it. And we've also worked really hard to fix the loan forgiveness programs we've offered, like Public Service Loan Forgiveness. In total, we've identified 3 and 1/2 million people for loan forgiveness. So come to StudentAid.gov and take a look at what options are available to you.
RONDA LEE: Undersecretary, just wanted to talk about FAFSA. This is most borrowers' first entry point when it comes to student loans they're applying for colleges. And then they fill out the free financial aid to figure out how much they need to pay, how much their parents need to contribute.
Major changes happening to FAFSA coming out. Can you talk about that? What can borrowers expect? What's happening with FAFSA? And when should they see that new application roll out?
JAMES KVAAL: Yeah, we're really excited about the changes to the FAFSA. We're implementing some bipartisan legislation that is going to make the process a lot simpler and easier for students and families. And it's also going to make the form more progressive.
We're going to have more students who are eligible for Pell Grants. And so both of those things are going to be possible when we launch the new form later this year.
BRAD SMITH: On the other side of this is just the cost of education and how much of not just an individual decision it is, but a household decision. So how is the administration also looking at making sure that those costs up front that families have to take into consideration and, for the sake of the conversation we're having right now, go into an extreme amount of debt over as well?
JAMES KVAAL: Yeah, you're absolutely right. We see college costs now, it's not just an issue for a student, but it's issue for their families. Oftentimes, people who are still repaying their student loans are struggling to pay for their children's education, struggling to start a business or start a home. So this really is an issue of college costs that affects families and communities and really the economy as a whole.
We've worked really hard to bring down the cost of college going forward. Pell Grants are up by the largest amount in a decade. And we're also identifying those places that leave students with loans they can't afford to repay. A lot of them are for-profit colleges, and we have new rules coming out in the near future to hold them more accountable for that.
RONDA LEE: Speaking of the for-profits, stat is that 50% of the students who go into default are attendees of these for-profit schools. So can you go into a little bit about the Fresh Start program to get people out of default into good standing? And also, let's talk to borrowers about what they need to be doing, contacting their loan servicers, in order to be ready for October 1.
JAMES KVAAL: Yeah, thank you for the question. So before the student loan pause, we had a million people a year defaulting on their student loans. These are disproportionately low-income students, students of color, first-generation students.
And it can be very costly and very punitive if you have a student loan in default status. So we have created the Fresh Start program. That gives everyone an opportunity to start repayment coming out of the pause on a new beginning just like all other students have.
And we're asking people to call their student loan servicer or come to StudentAid.gov and elect to participate in this program and choose a repayment plan. That's really important to do if you have a loan in default.
JULIE HYMAN: When you think about the longer-term goal here for debt as it relates to higher education in this country, do you guys have a goal in terms of-- do you want to reach a point where we have no students take on debt in order to get a higher education? I mean, how are you thinking about this in sort of bigger terms?
JAMES KVAAL: Yeah, well, one thing that we've made a lot of progress on is trying to clean up the student loan program and make it more affordable to repay your student loans, especially if you're in public service, you have persistently low income, you become disabled. The second step is investing in the upfront cost of college, and that's where doubling the Pell Grant, free community college come in. And those goals are ambitious, but they are achievable. The president pays for them within his budget.
And then the third step is looking at, where does all this unaffordable debt coming from? And a disproportionate share does come from for-profit colleges. We need to take a look at those programs that are leaving students with debts they can't afford to repay and figure out what a better option is there.
Can we improve the value we're offering students? Or do we need to finance those programs with scholarships or other means?
BRAD SMITH: Our thanks to United States Undersecretary of Education James Kvaal and our very own Ronda Lee. Thanks for joining us for our Student Loan Week.
JAMES KVAAL: Yup.