Government shutdown creates uncertainty for financial aid applicants and recipients, graduates seeking to repay loans

After more than a month, the longest shutdown in U.S. history—which could be headed for a temporary resolution, with an agreement to reopen for three weeks announced Friday—has taken a toll, creating financial uncertainty for students with bills to pay, obstacles for students seeking financial aid, and challenges for graduates with student loan debt to pay off.

A ‘ripple effect’ from unexpected loss of income

Approximately 800,000 federal employees have not been receiving paychecks, making payments on college tuition, books, and fees extremely difficult, both for employees and their children who are enrolled in college.

“The ripple effect is significant. There are very few people who are untouched,” Maureen Murphy, president of College of Southern Maryland, told Inside Higher Ed. “I don’t think anybody realizes how thoroughly it disrupts the lives of people who are struggling to get an education.”

Some schools are stepping in to help: Southern Maryland and Wayne State University are offering assistance in the form of deferred payment plans and emergency loans; Thomas Edison State University has pledged to cover missing tuition assistance funds for affected Coast Guard students; and Southern New Hampshire University has created a $1 million special fund for students experiencing irregular income due to the shutdown.

“We’re working with students coming now who didn’t think it would take that long or thought their parent would be back to work by now,” said Dawn Medley, associate vice president for enrollment management at Wayne State. “Every day we’re having new ones pop up.”

Complications for financial aid applications

With 90 percent of Internal Revenue Service workers furloughed, students are unable to obtain tax transcripts required by the Free Application for Federal Student Aid (FAFSA), writes USA Today.

Last week, the Department of Education announced alternative ways for students to verify their income or tax filing status, but delays in FAFSA processing are forcing students to estimate the amount of aid they will receive. If those estimates end up being wrong, some students are worried that they will have to drop out of college, unable to make up the difference in tuition and fees.

A University of Maryland student told Teen Vogue that she prepared herself to “start working, […] go to a local community college, or take a semester off and just figure things out.” she says. After being featured on the local news and starting a GoFundMe school officials contacted her to work out a solution.

Disruptions in loan repayment plans

Lack of IRS services is also affecting college graduates with income-driven repayment plans, who are unable to prove or recertify their income without tax documents, writes MarketWatch.

The IRS says their data retrieval tool, which was offline, came back online on January 14. But the tool doesn’t help borrowers whose financial circumstances have changed since their last tax return. Without tax documents, such borrowers must turn to pay stubs or letters from employers, which include different information and can affect monthly payment calculations.

Meanwhile, furloughed federal employees can ask their loan servicers about payment plan options that take into account their temporary lack of income. A student loan lawyer advises avoiding forbearance, where payments pause but interest continues to accumulate.

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