While the Department of Education (ED) continues to plot out the parameters of its ‘fresh start’ policy for borrowers currently in default, a new survey is indicating that federal student loan holders who have struggled with repayment could face long-term challenges to the repayment system.
The Pew Charitable Trusts conducted a recent study that found roughly a third of federal student loan borrowers have at some point in time gone into default, with a significant portion of those students experiencing default multiples times.
Pew’s survey which was conducted from June 18 to July 28, 2021 used data collected from a sample of 1,609 respondents, and focused on borrowers who took out their first federal undergraduate student loans between 1998 and 2018.
According to Pew’s report, within the past two-decades 65% of borrowers have never defaulted on their loans, compared to 35% who have. Among those 35% of borrowers, 66% have entered default more than once suggesting that default and redefault are distressingly common.
“While past studies examined specific cohorts of borrowers—those who entered school or repayment within the same select years—this new data encompasses borrowers who entered repayment at any point over the course of two decades” the report explains. “That helps show the magnitude of default and redefault over a longer time span and across different cohorts of borrowers entering the repayment system.”
What do federal student loan borrowers say are the most common reasons why their loans are in default or have gone back into default?— The Pew Trusts (@pewtrusts) June 14, 2022
They overlap. Borrowers say they’re …
- Paying off higher priority debts first
- Feeling overwhelmed
- Unable to afford the payments
As the payment pause continues and ED works to implement its varying transitional plans, concerning the ‘fresh start’ policy, targeted loan cancellation, and the continued conversation over further executive action, Pew plans to release additional reports detailing student experiences with the repayment system.
“As the government works to implement these and possible future initiatives, policymakers will need to have a comprehensive understanding of the challenges faced by borrowers who have experienced default so proactive steps can be taken to help keep borrowers on track,” the authors of the report said. “Otherwise, past repayment problems could be repeated after the pause ends.”
For a comprehensive list of policy solutions aimed at fixing the broken repayment system, check out NASFAA’s recent report, in partnership with more than 20 organizations, urging for comprehensive student loan reform.
Publication Date: 6/17/2022