July 22, 2024
Loans

Student Loan Update as Millions Fail to Make Repayments


Many student loan borrowers were unable to make their first payments after the end of the three-year-long pause they had enjoyed since March 2020, according to recent data from the Department of Education.

The data comes at a time when student loan relief, as originally planned by the Biden administration, has been put on hold after the president’s plan was struck down by the Supreme Court this summer, but the topic is still a heated subject of debate.

Payments on federal student loans had been suspended in the early months of the COVID-19 pandemic by the Donald Trump administration, with borrowers given some respite at a time when so many were struggling financially. The break was then extended for nine consecutive times, but it came to an end on October 1, when payments resumed for millions of borrowers.

A total of 43 million Americans are estimated to hold a combined $1.75 trillion in student debt. More than 28 million borrowers returned to repayment this fall, according to the Education Department.

Student loan debt
Student debt relief activists participate in a rally at the Supreme Court on June 30. More than 4 million student loan borrowers who had to start repaying their debts in October now owe money for the first time, according to the Education Department.
Kevin Dietsch/Getty Images

In the summer, the Consumer Financial Protection Bureau found that one in five student loan borrowers had risk factors that suggested they could struggle to pay back their debt after the end of the pause.

Now, Education Department data confirms this assessment. It says only 60 percent of the 22 million federal loan borrowers who had payments due in October made those payments by mid-November. More than 4 million of these borrowers owe money for the first time, according to the department.

These numbers did not include those borrowers who did not have a payment due in October, including those who had returned to school, recently left school or are covered by the department’s recent actions addressing servicing errors.

In late October, the department found that MOHELA—one of the country’s biggest student loan servicers—had failed to send billing statements on time to 2.5 million borrowers, causing more than 800,000 to become delinquent on their loans. As a result, the department said, it was withholding $7.2 million in payments to MOHELA in October.

“We will not rest until the Biden Administration has fixed a broken student loan system,” the department said in a press release about student loan payments, highlighting that most borrowers are making the payments.

Although President Joe Biden‘s original loan forgiveness plan was struck down by the Supreme Court, his administration has managed to provide temporary relief for some borrowers, including the Saving on Valuable Education Plan, which targets lower-income borrowers and those with high debts.

Newsweek contacted the Education Department for comment by phone.

The department said those who have not made their first payment “need more time” to work the federal student loan repayment into their monthly budget, while “some are confused or overwhelmed about their options.”

Those who have missed their payment will be protected by some of the harshest consequences—including delinquency, default and mandatory collections—until September 2024, as part of a 12-month on-ramp period created by the Education Department.