Borrowers Overwhelmingly Report Difficulty Navigating Student Loan Payment System, Study Finds

By Owen Daugherty, NASFAA Staff Reporter

Job loss, unexpected health problems, and natural disasters are all primary factors that student loan borrowers say lead to them not being able to make their payments on time, according to a study released this week by the Pew Charitable Trusts.

Pew conducted 16 focus groups in eight cities with more than 150 participants and found that financial insecurity drives borrowers’ repayment behavior, and disruptions in life is the primary cause for falling behind on payments. 

“The payments stopped because I didn't have work. … And so [I’m] just trying to take care of myself in survival mode,” said a borrower from a Seattle focus group.

The focus groups suggested that many borrowers found the repayment system difficult to navigate, experienced a number of challenges paying down their loans, and did not or were unable to access prompt and sustained relief, particularly when they were financially stressed.

Borrowers reported experiencing anxiety and frustration regarding their outstanding student loan balance, often resulting in an inability to pay their loans on time.

For the study, Pew classified the borrowers into various groups: those who were on track to repay their student loans; those who were not on track to repay, regardless of their balances, classified as general, off-track; those who were off-track and had balances of $40,000 or more, classified as high-balance, off-track; and those who were off-track and had balances of $10,000 or less, classified as low-balance, off-track.

The off-track borrowers across all categories, the study found, generally ran into trouble with their student loan debt early in repayment, with many saying they felt unprepared and were forced to learn the ropes through trial and error. 

“As a result, some off-track borrowers said they first interacted with their servicers when the servicer reached out after they missed payments,” the study said.

Notably, nearly half of respondents in a previous survey said they would skip a student loan payment should an unforeseen expense of $400 occur. Skipping payment on credit cards and cable or phone bills were the only more common responses. Off-track borrowers across all categories reported having limited resources for necessities such as transportation, housing, child care, utility bills, and groceries, which all took precedent before student loans.

“I started repaying, but things will come up and I’ll be like, do I pay for my child’s daycare or do I pay for student loans? Oh, I’m going to pay for daycare because I have to get to work. So that’s the end of it. That’s how it is,” a high-balance, off-track borrower who participated in a focus group said. 

Another participant noted that student loan payments, unlike utility bills, have the ability to be paused, making it a more attractive option when finances are squeezed.

Once borrowers paused their payment plans, the study found they did so for far longer than they initially planned. Furthermore, those that paused payments found it easy to do so, noting that the most expedient option was deferment or forbearance, as opposed to enrolling in an income-driven repayment (IDR) plan.

Participants in the focus groups also reported that IDR plans were often difficult to enroll in and continue utilizing, partly due to the complex application and annual recertification processes. There are currently approximately 8.4 million unique borrowers enrolled in IDR plans as of March 2020, according to new data from Federal Student Aid.

The Congressional Budget Office (CBO) released a report earlier this year outlining the significant growth in the number of student loan borrowers in IDR plans. The agency found that between 2010 and 2017, the proportion of undergraduate students enrolled in IDR plans grew from 11% to 24%, and from 6% to 39% for graduate students.

CBO’s data showed that borrowers enrolled in IDR plans are less likely to default than those in other plans, namely fixed-repayment plans. However, Pew’s study found that for IDR plans to be more widely implemented and utilized, the application and annual recertification processes need to be more streamlined and easier to understand.

“Both off- and on-track borrowers identified the annual income and family size recertification process as the biggest challenge to enrolling and remaining in income-driven plans,” the study said. “Many borrowers were unable to complete the process on time, causing their payments to increase, and some cycled in and out of these plans, sometimes being placed in forbearance until they could re-enroll, which extended their time in debt.”

The study lays out several concrete ways in which policymakers can provide assistance to borrowers, with many of the concepts of particular salience given the COVID-19 pandemic.

The extension of deadlines for re-enrolling in IDR plans would help borrowers maintain the current payment plan they are enrolled in, the study noted, recommending early 2021 as the new deadline, when borrowers have the updated tax information necessary to re-enroll.

Additionally, the study found that allowing borrowers who experience a loss of income to enroll in or recertify for an IDR plan without a cumbersome application process on a temporary basis would provide flexibilities when disruptions, such as the ongoing pandemic, occur. In order to give borrowers the greatest amount of flexibility, Pew suggested servicers be temporarily permitted to enroll borrowers into an IDR plan without requiring extensive paperwork, and be able to do so over the phone or through a website application.

“As policymakers from both sides of the aisle consider short- and long-term options to aid borrowers, they should focus on maintaining flexibility, reducing repayment complexity, and supporting at-risk borrowers,” Pew wrote in a statement accompanying the study.


Publication Date: 5/22/2020

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