Student Loan Repayment Resumes: Uncertainty Looms as Borrowers Navigate New Landscape

Student Loan Borrowers Face Uncertainty as Repayment Landscape Shifts

As millions of federal student loan borrowers navigate the post-pandemic financial landscape, uncertainty continues to loom over the fate of repayments and debt relief programs. A recent Government Accountability Office (GAO) report reveals that less than half of borrowers with monthly bills exceeding $0 were current on their payments as of January 31, 2024.

The past year has been marked by a series of measures implemented by President Joe Biden’s administration to ease the repayment process. These include the over-three-year pause on student loan payments that ended last fall and various debt relief efforts. However, challenges persist for many borrowers.

According to the GAO report, only 40% of borrowers with scheduled payments greater than $0 were current on their payments, while 29% were past due. The remaining borrowers were either in forbearance, deferment, or current on their $0 payments.

Jason Delisle, a senior fellow at the Urban Institute, suggests that the high delinquency rates could be attributed to borrowers taking advantage of the Education Department’s on-ramp period, which ends in October. During this period, missed payments are not reported to credit agencies.

“There’s also a chance that you’ll have your loans forgiven, which the Biden administration has very much so kept front and center for folks,” Delisle noted. “Even if it’s not going to happen, they’ve led people to believe that it probably is.”

The Supreme Court’s decision to strike down Biden’s initial broad student loan forgiveness plan has led the Education Department to craft a new plan under a different law, set to take effect this fall. However, legal challenges are expected to impact this effort as well.

A NerdWallet survey conducted in July revealed that 31% of borrowers slowed repayment in hopes of Biden reducing or forgiving their balances, while 23% stopped paying altogether for the same reason.

As the on-ramp period nears its end, many borrowers are seeking alternative forms of relief to avoid negative credit reporting. The Education Department plans to implement its broader relief, expected to benefit over 30 million borrowers, in October. However, legal challenges loom, with Missouri Attorney General Andrew Bailey announcing preparations for a multistate lawsuit to halt the relief once finalized.

Recent legal developments have added to the uncertainty. The 8th Circuit Court of Appeals blocked Biden’s new SAVE income-driven repayment plan, raising concerns about the potential impact on other forgiveness programs like Public Service Loan Forgiveness.

As borrowers await clarity on the SAVE plan and Biden’s broader relief proposal, the future of student loan repayment remains uncertain. Delisle concludes, “What’s going to happen with the SAVE plan is big. What will the next administration do, if anything, in response, to create another plan that might be able to clear the legal hurdles?”