Panel Highlights Landscape of Student Loan Default as Clock Runs Out on Repayment Pause

By Hugh T. Ferguson, NASFAA Managing Editor

The impending wind down of the three-plus year payment pause on federally-held student loans is prompting higher education experts to warn policymakers that more investments are needed in order to stem off a rise in borrowers defaulting on their student loans.

In a panel discussion with the Pew Charitable Trusts, a group of student loan experts with a particular focus on borrowers who have defaulted on their loans highlighted the “chaotic” environment that many borrowers will need to navigate when the payment pause expires. Panelists specifically urged policymakers to use the remaining time to implement reforms, streamline communication, and raise awareness about programs that can help keep borrowers out of default.

The conversation focused on the most vulnerable populations within the student loan system, particularly borrowers from minority and low-income backgrounds, and explored the emotional and financial toll that default can impose on a borrower.

Ilan Levine, an associate at the Pew Charitable Trusts’ student loan research project, highlighted a 2022 Pew survey that provided more insight into the profile of defaulted borrowers and used his remarks to paint a picture of the competing financial priorities that many borrowers face, such as medical bills, credit card debt, and auto loans.

Taken as a whole the student loan system, particularly for borrowers who have entered default, creates a feeling of overwhelm for borrowers trying to navigate their competing basic needs. Additionally, the costs associated with default can in many instances be more expensive than repayment plans that are available to borrowers with low incomes.

What particularly concerned the panelists was that much of the research into borrowers experiencing default was taken from the beginning of, or the outset of the pandemic, and with borrowers being out of the practice of making repayment the likelihood of default begins to increase.

“If we don't make some of these interventions successfully, once borrowers do find themselves in default it can be somewhat of a terminal state for a lot of folks, especially if they do exhaust some of these options like rehabilitation and consolidation to exit,” said Brian Denton, an officer with Pew’s project on student borrower success. 

Denton said that default prevention should be the primary focus for the first few months of the end of the payment pause, especially since new survey data, which Pew is in the process of releasing, finds that students feel more financially vulnerable coming out of the pandemic than when it first began.

The resumption of repayment is just one aspect of concern, according to Sarah Sattelmeyer, New America’s project director on education, opportunity, and mobility. The Department of Education’s (ED) simultaneous proposed changes to income-driven repayment (IDR) adds chaos to this environment, she said, along with the varying timelines associated with the end of the payment pause and eligibility requirements for ED’s “Fresh Start” initiative.

“These things are very complicated. We work on them all the time, but even we are confused by them sometimes and I think that’s really a point to highlight because that means people who are not following this day to day … [it] is especially challenging,” Sattelmeyer said.

The panel also urged policymakers to increase funding for the Office of Federal Student Aid, which had its budget flat-funded in the most previous fiscal year and will now have to increase engagement with student loan borrowers to implement the return to repayment.

Panelists also underscored that while the pause is approaching its end, it is integral for proactive reforms to take effect before borrowers fully reengage with the system. 

“We have an opportunity here,” Levine said. “Because we don't have borrowers actively engaging in the system right now, this is a time that we can take advantage, this is a window of opportunity that we can use to make reforms when borrowers are not going to encounter additional confusion.”


Publication Date: 5/8/2023

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