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Initial data is now available on how borrowers are faring as they resume repayment of their student loans.
The U.S. Government Accountability Office (GAO) has released preliminary observations on borrowers' repayment after the end of the payment holiday and interest forgiveness. Additional historical data was obtained from the Federal Student Loan Portfolio section of the FSA Data Center.
Although the number of borrowers who are behind on their federal student loans is larger today than before the pandemic, The percentage of borrowers who make their repayments on time is lower. This is partly because the repayment activity of nearly 10 million borrowers temporarily declined due to the 12-month grace period and partly because more borrowers have been added to the federal student loan portfolio since the start of the pandemic.
Additionally, more borrowers are eligible for a zero payment under the SAVE repayment plan than in the REPAYE plan because the disposable income threshold was raised from 150% to 225% of the poverty line. Borrowers with a calculated payment of zero are considered to be in arrears on their loans.
Let's take a look at the data and see how borrowers are responding to the resumption of student loan repayment.
History of student loan payment holidays and interest forgiveness
Section 3513 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) [3/27/2020, P.L. 116-136] approved a payment pause and interest forgiveness for federal student loans. The payment pause was retroactive to March 13, 2020, and ended on September 30, 2020.
The payment pause and interest forgiveness have been extended a total of eight times, twice by President Trump and six times by President Biden. President Trump extended the payment pause to December 31, 2020 and January 31, 2021. President Biden extended the payment pause to September 30, 2021, January 31, 2022, May 1, 2022, August 31, 2022, December 31, 2022 and September 30, 2023.
The extensions of January 31, 2022 and December 31, 2022 were described as “final” extensions, but further extensions followed.
Further extensions were blocked by the Fiscal Responsibility Act of 2023 [6/3/2023, P.L. 118-5]after which repayment is to resume 60 days after June 30, 2023. Interest will begin to accrue on September 1, 2023, and repayment will resume in October 2023.
The payment break lasted more than three and a half years, a total of 1,297 days (42 months and 18 days). During the payment holiday, over $208 billion in interest was waived.
Run-in period for student loans
Concerned about the challenges of resuming repayment after so many years of nonpayment, the U.S. Department of Education implemented a 12-month “wind-down period” to protect borrowers from negative credit reports if they default.
Typically, federal student loan borrowers are reported as delinquent to the three credit bureaus if they are more than 90 days late in making payments.
However, during the 12-month transition period, the U.S. Department of Education implemented retroactive administrative forbearances when borrowers were 90 days delinquent. During these forbearances, interest continued to accrue, but approximately 6.7 million delinquent borrowers were protected from negative credit reports.
“Restart” initiative
The U.S. Department of Education also implemented the Fresh Start Initiative, which returns delinquent borrowers to status without requiring them to rehabilitate their loans through consolidation or make a series of voluntary payments on time. Technically, the payment pause was counted as if the borrowers had made the on-time payments required under loan rehabilitation.
The Fresh Start Initiative erased the delinquency from the borrower's credit history. It also suspended forced collection methods for defaulted federal student loan debt, such as wage garnishments and the IRS's offset of income tax refunds and Social Security and pension benefit payments.
Before the pandemic, 7.8 million borrowers were insolvent. After the implementation of the Fresh Start Initiative, the number is 6.0 million borrowers.
Current status of government student loans
The tables below show the status of outstanding federal education loan debt as of January 2024. It is important to note that while student loan repayments resumed in October 2023, issues with the loan servicer resulted in borrowers remaining in administrative forbearance for months.
This is what the payments looked like for borrowers who were behind on their student loan repayments.
Specifically, 14% of all federal student loan borrowers, or 4.5 million people, had loan payments of zero dollars per month. That's 30% of all federal student loans. The sharp increase in zero-dollar monthly payments is also the reason for an 80-fold increase in the cost of the student loan program.
Delinquent borrowers included borrowers who were one or more days past due. Six million borrowers, or 60% of delinquent borrowers, were 91 to 120 days past due. These borrowers represented the majority of the 6.7 million borrowers ($186 billion) in the accrual phase who were protected from negative credit reports. The breakdown of delinquent borrowers was as follows:
- 1 – 30 days late: 2.4 million (24%)
- 31 – 60 days late: 0.8 million (8%)
- 61 – 90 days late: 0.8 million (8%)
- 91 – 120 days late: 6.0 million (60%)
Choice of student loan repayment plans
This table shows the distribution of borrowers across repayment plans.
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Repayment plan (January 2024) |
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|---|---|---|
For borrowers on the SAVE repayment plan, payments are as follows:
For borrowers with other IDR repayment plans, payments will be as follows:
Note that only 6.2 million (85%) of borrowers and $333 billion (84%) of the SAVE repayment plan had a scheduled payment, including a zero payment, as of January 31, 2024. Similarly, 4.3 million of borrowers (78%) and $257 billion (85%) of other IDR plans had a scheduled payment.
Overall, 44% of borrowers and 36% of IDR plans, including the SAVE repayment plan, had a monthly payment of zero.
⚠︎ Lawsuits over SAVE student loan repayment plan
Two lawsuits were filed to prevent the SAVE repayment plan from being implemented, one of which was successful and obtained a preliminary injunction pending appeal. As a result, the U.S. Department of Education granted the 8 million SAVE repayment plan borrowers an interest-free payment deferral on July 19, 2024.
- 11 Republican states filed suit in the U.S. District Court for the District of Kansas on March 28, 2024, to block implementation of the SAVE repayment plan. The Kansas court issued a ruling on June 24, 2024, blocking the portions of the final rule that had not yet gone into effect. On June 30, 2024, the U.S. Court of Appeals for the 10th Circuit issued a stay of the Kansas court's ruling pending appeal.
- 7 Republican states filed suit challenging the SAVE repayment plan in the U.S. District Court for the Eastern District of Missouri on April 9, 2024. The Missouri court issued a ruling blocking the portion of the scheme related to debt forgiveness on June 24, 2024. Following the 10th Circuit Court of Appeals' decision, the plaintiffs appealed the Missouri ruling to the U.S. Court of Appeals for the 8th Circuit, seeking to block the entire scheme. On July 18, 2024, the U.S. Court of Appeals for the 8th Circuit issued a stay blocking implementation of the SAVE repayment plan. The 8th Circuit subsequently replaced the stay with a preliminary injunction on August 9, 2024. The U.S. Department of Justice filed an emergency motion with the U.S. Supreme Court on August 13, 2024, asking the court to vacate the 8th Circuit's preliminary injunction after the 8th Circuit refused to clarify whether its ruling applied only to the SAVE repayment plan and not to all income-driven repayment plans.
- The Supreme Court of the United States disputed the application for lifting the interim injunction on August 28, 2024.
Status of federal student loans compared to before the pandemic
The following tables show the status of outstanding federal education loan debt before and after the pandemic, comparing the repayment status of federal student loans in January 2020 (before the pandemic) to January 2024.
*Due to rounding, percentage values may total more than 100%.
Although the number of borrowers currently paying off their debt has increased, the percentage has decreased, in part because the number of borrowers paying off their debt has increased by more than 5 million. The number of borrowers paying off their debt includes borrowers who are currently paying off their debt, borrowers who are delinquent, borrowers in deferment, or borrowers in forbearance.
The number of borrowers in arrears has doubled, partly due to the increase.
The distribution of borrowers by loan status is likely to change significantly after the September 30, 2024 deadline. Some of these borrowers will begin repaying their student loans, others will receive a deferral or forbearance, while the rest will remain in default.
This repayment behavior is better than expected despite the longer duration of the payment break.
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