Student Loan Crisis Accelerates as Defaults Soar Above Pre-Covid Levels

Federal student loan borrowers are staring down a “default cliff” as the number of loan delinquencies and defaults explode due to the end of a pandemic-era collection pause.There were about 3.7 million borrowers in default in March 2020, and that number has grown to an estimated 5.5 million today, according to the Institute For College Access and Success. The number could nearly double soon as another 3.68 million are in severe delinquency and their loans could soon be classified as in default. A student loan is considered to be in default if a payment hasn’t been made for at least 270 days.In addition, 1.17 million borrowers were 30-89 days delinquent and 1.56 million were 90-269 days delinquent.A survey of federal student loan borrowers found that managing student loan debt is making it more difficult for more than 40 percent of borrowers to keep up with other bills. The student loan payments are often the first bills consumers are abandoning.President Trump instituted a moratorium on defaulted student loan payments during the early days of the Covid pandemic, and President Biden repeatedly extended the freeze on collections. The current Trump administration has criticized his predecessor’s repeated extensions and resumed loan collections.A grace period for restarting student loan payments ended in June, and that’s when default numbers began exploding. Student loan default has severe and punitive consequences, according to the Institute for College Access and Success, including pushing credit scores down to subprime levels that make getting mortgages and even car loans practically impossible.Mr. Trump reversed the Biden administration’s loan forgiveness programs and announced that wage garnishments would restart this year. The federal government can seize up to 15 percent of a borrower’s after-tax wages if they are in default. Tax refunds can also be seized from filers with defaulted student loans.A collection of advocacy groups, including the Protect Borrowers, NAACP, and the National Education Association sent a letter in early January to Education Secretary Linda McMahon asking for the restart of garnishments to be halted.The Trump administration reversed course in mid-January and announced a delay in implementing wage garnishments to enable what it called major student loan repayment reforms.“The Department determined that involuntary collection efforts such as Administrative Wage Garnishment and the Treasury Offset Program will function more efficiently and fairly after the Trump Administration implements significant improvements to our broken student loan system,” Under Secretary of Education Nicholas Kent said in a statement. Among those changes are a simplification of payment plans and a new income-driven repayment plan that waives any monthly interest that is not fully covered under a made payment. That would help stem a common complaint among borrowers who say they have made payments for years but their loan balance keeps rising due to payments not covering interest.It wasn’t immediately clear when collections would restart.Nearly 43 million Americans — one in six adults — hold student loans, and the federal student loan portfolio now exceeds $1.6 trillion, according to the Congressional Research Service.

Student Loan Crisis Accelerates as Defaults Soar Above Pre-Covid Levels

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