Posted on 12/18/23
| News Source: FOX45
Millions of borrowers failed to make their first student loan payment as bills started coming due again in October after a three-year hiatus brought on by the coronavirus pandemic and after an attempt to wipe out massive swaths of federally-held debt.
Forty percent of borrowers, some 8.8 million people, had a payment due in October but had failed to make it by the middle of November, the Education Department said on Friday. In total, there were 22 million borrowers who had their payments come due and 60% of them successfully made their payment by the middle of the month.
Payments started coming due on Oct. 1 for millions of federal student loan borrowers, who had not had to work on paying off their debt since early 2020 when the pandemic shut down the world and led then-Education Secretary Betsy DeVos to institute a freeze on payments as the economy quickly went into recession and borrowers struggled to make payments. That freeze was extended eight more times between the Trump and Biden administrations as the pandemic lingered and an attempt to wipe out student loan balances that was struck down by the Supreme Court.
Americans collectively hold $1.6 trillion in federally backed student loan debt, which is a source of serious financial strain to many borrowers. Returning to repayment is especially difficult for low-income borrowers, who are also being hit with higher prices brought on by inflation.
In preparation for the return of payments, the administration announced it would be offering a 12-month “on-ramp” to give people more time to adjust. During the yearlong period, borrowers who do not make payments will not be reported to credit bureaus for missing payments as delinquent. It does not mean the balances will be forgiven or canceled, and the balance will still collect interest over time.
“While most borrowers have already made their first payment, others will need more time. Some are confused or overwhelmed about their options. We want to make sure borrowers know that our top priority is to support student loan borrowers as they return to repayment,” U.S. Undersecretary of Education James Kvaal said in a blog post.
The problems with getting people back into repayment were widely expected and warned of by the government, servicers and financial planners due to the stop-and-go nature of the continued payment moratorium, time passed between borrowers interacting with the payment system and big changes in the servicer industry, which saw significant numbers of borrowers being transferred.
The transition to new servicers was also rocky, with several being hit with penalties from the Education Department for failing to provide billing statements on time, which resulted in borrowers being put into delinquency.
Republicans, who broadly opposed the cancellation efforts, blamed the administration for failing to adequately plan for the logistical challenges of getting the 22 million borrowers back into repayment.
Republican Sen. Bill Cassidy and Rep. Virginia Foxx, leaders on the Senate and House committees that oversee education, have asked the Government Accountability Office to review the Education Department’s efforts to return borrowers to repayment.