93% of borrowers with student loans are in default after pandemic relief

  • New ed. Data from the department found that 93% of federal student borrowers are still in default, even after the payment break.
  • Administrative barriers made it difficult for these borrowers to return to a good reputation during the pandemic.
  • The department is reportedly considering a “safety net” to facilitate borrowers’ repayment.

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New data from the Department of Education reveals that of the 7.7 million federal student borrowers in the United States who were behind with payments at the beginning of the pandemic, 93% are still behind – despite a nearly two-year break in payments.

During the payment break, borrowers in default also had the opportunity to participate in the Education Department’s “rehabilitation” program, which allowed borrowers to make nine monthly payments during the break to be brought back in good condition. And given the payoff, borrowers could count $ 0 payments in their progress.

But to participate in the program, borrowers had to fill out significant amounts of paperwork and communicate with their student loan company, which, as Insider has reported, is no easy feat, leaving many borrowers without the information they need to pay their installments. debt.

“It is no exaggeration to say that even with massive federal intervention to give borrowers a way out of default under COVID, hardly any borrowers have had success with it,” the Student Borrower Protection Center wrote in its analysis. “These findings are a surprising indictment of the systems that borrowers rely on to secure their rights under the law.”

According to the data and an analysis by the Student Borrower Protection Center, of the 5.7 million borrowers with federal direct student loans in default at the beginning of the pandemic, 91% of them are still in default. Of the 2.8 million borrowers under the Federal Family Education Loan (FFEL) program, which is owned by the Department of Education, 95% of them are still in default.

Across the entire federal student loan portfolio, 93% of the 7.7 million borrowers who defaulted on $ 168 billion in student loans at the beginning of the pandemic are still in default.

Although many borrowers are not ready to resume payments on February 1, the Ministry of Education has made it clear that they do not plan to change the timeline. However, the department is reportedly considering a “safety net” for borrowers when resuming payments, one of which could include automatically deleting defaulted payments for 7 million borrowers and giving them a “fresh start.” Details of these plans are not yet final.

Defaults on student loans can have a wide range of negative consequences for a borrower’s financial situation. Not only can this lead to wage arrears, but borrowers in default with children can also risk having their child tax deduction seized – a critical family benefit.

And in July, Massachusetts Senator Elizabeth Warren and rep. Ayanna Pressley a group of Democrats to write a letter to Education Minister Miguel Cardona with concerns about “throwing” borrowers back into repayment without a plan to protect their credit score and financial stability.

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