Nearly 90% of Federal Student Loan Borrowers Are Utilizing Payment Pause

By Hugh T. Ferguson, NASFAA Managing Editor

The vast majority of federal student loan borrowers have left their balances untouched since March 2020, with only 10.3% of balances decreasing since the initial implementation of the repayment pause and interest accrual, according to new data.

An update published this week from the Federal Reserve Bank of New York comparing repayment statuses at the end of 2019 to 2021 shows it is possible that even fewer borrowers have been using the pause to pay down their loan balances.

While those borrowers moved from a category of flat or increasing balances to decreasing balances or no reported loans, that could include those who paid off their loans, had them forgiven, or charged off, the report explains.

“This shift is likely due to borrowers taking advantage of the payment freeze and interest waiver to reduce balances during the pandemic,” a blog post analyzing the data states.

Since this category includes borrowers who could have had their loans forgiven through a specific repayment program, it is likely that fewer than 10% of borrowers have been paying down their balances.

Considering that the Department of Education (ED) under the Biden administration has approved a swath of targeted debt relief, implemented programmatic adjustments that enabled more borrowers be eligible for relief through the Public Service Loan Forgiveness (PSLF) program, and approval of borrower defense claims, it is likely that a portion of the decreasing loan balances could be attributed to administrative action as opposed to borrower repayment.

In addition to the repayment findings, the data reported that 79.1% of student loan borrowers recorded higher credit scores at the end of 2021, which accounts for roughly 30 million borrowers.

This latest data set from the New York Fed underscores that in near future ED will essentially have to undertake a restart of the entire loan repayment system, where a litany of complications could be in store for the department in trying to get borrowers back into the habit of repayment.

If another extension is not forthcoming from the Biden administration, borrowers will be slated to resume repayment after Aug. 31, 2022 when the pause is scheduled to end.

“If so, we expect a reduction in the share of student loan borrowers not making progress on their loans as payment requirements resume,” the blog post explains. “While many will decrease their balances, some borrowers will enter delinquency or default. The extent of these shifts will largely depend on the policies that accompany the resumption of payments.”

NASFAA has urged the administration to develop and communicate a clear on-ramp to repayment strategy to ensure that borrowers are best prepared for this significant transitional period.

“We urge the Department of Education to begin the work to implement a smooth, efficient on-ramp to repayment now, without further delay,” NASFAA President and CEO Justin Draeger said in August 2021. “Transitioning millions of borrowers back into repayment cannot be done by simply flipping a switch, and may even require a phased implementation.”


Publication Date: 8/17/2022

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