By Owen Daugherty, NASFAA Staff Reporter
With student loan payments set to resume in February after a nearly two-year hiatus, a new survey found only a small portion of borrowers who had previously defaulted on a loan are prepared to make payments again.
A national survey of more than 1,500 borrowers from The Pew Charitable Trusts found only 36% of borrowers with a past defaulted loan said they could afford their same monthly payment when repayments resume after the pause ends Jan. 31, 2022.
Meanwhile, 55% of borrowers who have never had a loan in default said they could afford their same monthly payment when repayments resume. These results underscore the worry among student loan advocates and some lawmakers that many borrowers won’t be prepared or able to repay their loans come February.
Top Democratic senators have already reached out to Education Secretary Miguel Cardona asking the Department of Education (ED) to return defaulted student loan borrowers to good standing before payments on federally-held student loans resume.
The Pew survey found 48% of respondents with a past loan in default said they planned to reach out to their servicers within a month after the pause ends, compared with 44% of those who never went into default.
“The perceptions and attitudes among those who have a history of default should be a concern to policymakers because previous research shows that repeated defaulting is common among student loan borrowers,” Pew notes.
Among both borrowers who have defaulted on a loan and those who haven’t, less than 10% said they had already reached out to their loan servicer to discuss their options when the pause comes to an end.
A significant number of borrowers said they plan to reach out to their student loan servicer within a month of payments resuming, likely leading to a spike in incoming communication for servicers in the coming weeks.
Among borrowers who never experienced default, one-third said they had no plan to reach out to their servicer about their loan repayment options, while a lower percentage — 18% — of borrowers who experienced default said they had no plan to reach out to their servicer.
“Communication between this group and servicers could help boost the number who get into repayment plans that fit their financial situations,” Pew added.
While ED already said it would engage in targeted outreach to borrowers ahead of the resumption of payments, Sen. Elizabeth Warren (D-Mass.) and other top Democrats in a letter to ED last month urged the department to go a step further.
The letter argued ED has “an opportunity to relieve a significant burden on borrowers by developing a policy to forgive debts for borrowers who have been in default for an extended period of time.”
“Allowing payments and collections to resume without taking these actions to protect borrowers in default would undermine our economic recovery, and I urge you to take immediate steps to prevent these borrowers from being further harmed,” the letter added, noting that nearly 8 million borrowers entered the pandemic already in default on their federal student loans.
Another letter from Democratic senators this week called on Cardona to suspend wage garnishment of borrowers in default on their student loans.
“Currently, over 9 million borrowers are in default on more than $180 billion in federal student loan debt,” the lawmakers wrote to Cardona. “A disproportionate number of these borrowers are people of color, first-generation college students, veterans, parents, people with disabilities, and students who will not complete college.”
The letter also reiterated the request to automatically remove eligible borrowers from default status, an authority some lawmakers say the department possesses.
Publication Date: 12/22/2021