8 Million Americans Are in Default With Their Student Debt


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Of the 43 million Americans who hold student debt, roughly a fifth were in default this summer, writes Sarah Sattelmeyer.


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About the author: Sarah Sattelmeyer is the project director for education, opportunity, and mobility in the higher education initiative at New America.

More than eight million Americans were in default on their student loans as of June. They represent roughly one-fifth of the 43 million Americans who held federal student debt. In the year before the pandemic, more than one million borrowers went into default. These headline-grabbing numbers represent a problem that is both widespread and reflective of deep structural inequities, discrimination, and racism not only in our system of higher education but also in the foundation of how families access capital and build wealth.

For example, Black borrowers are more than twice as likely and Hispanic or Latino borrowers are more than 1.5 times as likely to default on their loans as their white peers. Low-income students, those with caregiving responsibilities, students who leave school without a degree, and those who are the first in their families to attend college, among others, have high rates of default. The pandemic hit these groups particularly hard.

Advocates and policymakers have proposed several solutions. On the front end of the higher-education system, free community college, funding to promote college completion and retention, and an expansion of the need-based Pell Grant—as considered during negotiations over the Build Back Better Act—would decrease the need to borrow and help more students see a return on their higher education investments. On the back end, recent actions to make the Public Service Loan Forgiveness programborrower defense to repayment, and total and permanent disability discharges easier to access and calls to cancel some or all student debt have and would alleviate burdens for many who struggle to repay.

But additional, important vehicles for higher education-related reforms are moving forward beyond the headlines (and often behind the scenes). The U.S. Department of Education is required to conduct a process called “negotiated rulemaking” to implement some laws passed by Congress. The process engages external stakeholders affected by the programs under consideration. While this sounds wonky and is unlike most other federal agencies, it’s critically important and shapes the way federal programs are designed and managed.

The department is currently conducting such a rulemaking to reform major pieces of the student loan repayment system. While it was not initially included in the list of topics to be covered, advocates have insisted that student loan default be added to the agenda. Addressing issues in the default system, among broader reforms, will ensure we are using a more holistic approach and creating a system that is more borrower-centered.

First, we must help borrowers avoid default by ensuring repayment terms are affordable, accessible, and reasonable in lengthOnce they enter repayment on their loans, borrowers can choose from a host of repayment plans. Income-driven plans are important options that tie borrowers’ monthly payments to their incomes and family sizes. They are more affordable for many and reduce rates of missed payments and default. Despite the availability of such plans, not everyone who could benefit can and does access one. Too many borrowers continue to struggle with payments that are too high, growing balances, long periods of time spent in repayment, and difficulty accessing and remaining in the plans.

Second, we must ensure that those in default can exit more easily and quickly by creating additional pathways out. Once borrowers are in default, it’s easy to get stuck there. The system is complex and confusing: Borrowers’ accounts can be transitioned multiple times after they enter default and there are limited ways to exit. Each path out has different terms, conditions, and associated costs. Some can be used only once. In addition, rates of redefault are high.

Finally, we must make the consequences of default less punitive. Being in default comes with severe consequences that continue regardless of the age of borrowers’ debts. Borrowers can have their wages garnished, have their tax refunds and federal benefits garnished or withheld, pay high collection fees, lose access to benefits, and experience damaged credit. And the combination of these means that borrowers can pay more and at a faster rate in default than they would have in any repayment plan, all while interest continues to accrue.

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