Some student loan holders begin payment, while others do not

Earlier this year the Biden administration ended a series of student loan repayment pauses and restarted the debt payment process.  How is it going so far?

According to the Department of Education, 60% of debt holders have resumed or started paying down the amounts they owe.

This means 40%, or nearly 9 million people, have not resumed paying off the students loans they hold. Why not, and who are they?

The official DoE statement offers a first answer:

Millions more were not making payments prior to the payment pause because they were delinquent or obtained a deferment or forbearance….

Some are confused or overwhelmed about their options.

It doesn’t mention poverty, job stress, or political attitudes against student debt,  The article does go on to add relief programs which (it implies) might help that 40%.  There’s the SAVE program,Public Service Loan Forgiveness, and Fresh Start.*  Also, “We are working with outside groups like Civic Nation and the NAACP through the SAVE on Student Debt Campaign.”  In addition, there’s an “onramp” which doesn’t seem to be a named program, but is nonetheless important:

To give borrowers breathing room while they work student loan payments back into their monthly budgets, we created the 12-month on-ramp period. Until next September, borrowers will be protected from the harshest consequences of missed payments, such as delinquency, default, and mandatory collections.

That’s September 2024, I infer.  I’m not sure how the DoE will make that protection happen, but hope they do.

Yahoo Finance has a useful article which adds a key aspect to the problem.  Some loan servicers are screwing up, as “some borrowers are experiencing delays and seeing billing errors from student loan servicers.”  Also “some borrowers who were supposed to have their loans discharged were erroneously placed into repayment.”

“Common issues that occur with a change of servicer include errors in the loan balance and interest rate, incorrect payment status reported to credit bureaus, missing payments in the borrower’s payment history, and changes in due dates,” Mark Kantrowitz, student loans expert and author, previously told Yahoo Finance.

The New York Times agrees with Yahoo Finance, then adds one more reason:

Borrowers and consumer advocates say the reasons so many people aren’t paying run the gamut from administrative delays — typically caused by backlogs at the four loan servicers hired by the government to collect payments and guide borrowers through their repayment options — to an inability to afford the bill.

What might this snapshot of American student debt mean for higher education’s future?

It’s possible that we’re experiencing a snafu as the complicated machinery of debt payment staggers back to life. We might see some of these problems as procedural, and they’ll improve over time, especially as the federal government works at it.  And we might also see more incremental forgiveness make life easier for some holders.  Some of those who pay might be realizing a net financial gain in careers and/or achieving a desired career – i.e., some of the system working as it’s supposed to.

Is it possible that by this time in 2024 we’ll see the student loan system improved over where it was in 2019?  If so, how much more work remains?

And yet.  Let’s say energetic administrative work gets the non-paying population down below 40%.  Perhaps 30%, or 25%. That yields a serious problem for the system and an enormous amount of pain for several million people.

We should also be open to the possibility that the number doesn’t drop much below 40%. History shows that administrative excellent is not something we can rely upon. Economic problems may draw some payers into the non-paying camp.  And we might see tuition and fees rise for a substantial number of institutions as campuses (and states) deal with inflation plus lower enrollment.

Meanwhile, even if all of the beneficial actions succeed, the overarching problem of American student debt remains largely in place.  The Biden administration’s forgiveness effort failed and it seems unlikely this president will try it again, especially with the intense election ahead. Perhaps a second Biden-Harris team would try again, although this will take some years.  A second Trump administration seems, ah, unlikely to offer an alternative.  The financialization and privatization of one of the world’s greatest higher education systems looks likely to persist for the short- and medium-term futures, with all of its attendant costs and miseries.

That’s me as an analyst and futurist.  As a person, I wish the Department of Education well and hope they receive more resources.  Ditto for the nonprofits and good firms working in this space.

One last note: I was struck by the language in the DoE’s statement, “The Department has also worked tirelessly to fix broken loan forgiveness programs…” Broken is pretty strong word choice.  Personally, I agree, but haven’t seen many in authority use that term.

*I had to find and add those hyperlinks because the official Department of Education post didn’t have them.  Why do people still avoid URLs in 2023?