Millions of borrowers are saying no to student loan payments that have come due since the payment pause ended. Find out why these borrowers are refusing to make their payments.
40% of Student Loan Borrowers Not Paying
Close to half of all student loan borrowers who have had loan payments come due following the end of the payment pause are refusing to pay.
Servicer Errors Not Considered
While the figure may be skewed slightly because it does not account for mistakes happening on the servicer end, many borrowers have decided not to repay their loans in hopes that the Biden administration will be forgiving them.
Biden’s Forgiveness Plans
A major element of President Biden’s campaign was his student loan debt forgiveness plan, which promised to forgive between $10,000 and $20,000 of student loans for eligible borrowers.
Supreme Court Says No to Forgiveness
But in July, after the Biden administration had announced that the forgiveness would start rolling out, the Supreme Court ruled against him and declared the program unlawful.
Majority Voted Against Biden’s Plan
“The authority to ‘modify’ statutes and regulations allows the Secretary to make modest adjustments and additions to existing provisions, not transform them,” wrote Chief Justice John Roberts at the time.
Dissenters in the Minority
Justice Elena Kagan, writing her dissenting opinion, said that the states that were suing to strike down the forgiveness plan were doing so despite having “no personal stake” in the issue.
“They Think The Plan Is a Very Bad Idea”
“The plaintiffs in this case are six States that have no personal stake in the Secretary’s loan forgiveness plan,” Kagan wrote.
“They are classic ideological plaintiffs: they think the plan is a very bad idea, but they are no worse off because the Secretary differs.”
Survey Says Borrowers Can’t Afford Payments
In a survey by the Federal Reserve Bank of Philadelphia, researchers found that most borrowers simply cannot afford to resume their student loan payments now that the relief has ended.
Pandemic Payment Pause Brought Relief to Borrowers
During the pandemic, student loan payments and interest charges were paused, allowing for some breathing room for people who were struggling to make ends meet as a result of global shutdowns.
Trump Administration Used Law to Pause Payments
At the time, former President Trump issued the moratorium on student loans based on a decades-old law that gives the Secretary of Education the authority “to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies.”
Supreme Court Said Same Law Does Not Apply to Biden
That is the same law that President Biden pointed to in his forgiveness plan, but that the Supreme Court said did not apply in that case.
The Announcement to Resume
Last year, it was announced that payments and interest accruals would resume in October of 2023. Borrowers were urged to check in with their servicers to find out when and how much they’d be expected to pay.
Payment Plans for Struggling Incomes
Some people were eligible for payment plans, like the Income-Based Repayment Plan which determined the monthly payment by looking at the monthly earnings of a borrower.
If people earn under a certain threshold, they are eligible for payments as low as $0 per month.
15% of Borrowers Did Not Make the First Payment
The Federal Reserve Bank of Philadelphia’s study found that “64 percent of borrowers made at least their full scheduled payment (including a $0 payment) and another 21 percent made a partial payment in October, with 15 percent of borrowers making no payment at all.”
Some of Those Who Paid Owed $0
Notably, this figure includes those people whose payments are set at $0, so it is unclear whether that group would have made their payments if any amount had been due.
Servicing Issues at the Root of Some Missed Payments
One study revealed that roughly one-fourth of student loan borrowers didn’t pay in October because of issues on the servicing end. Many others withheld payments because they couldn’t afford them.
21% Skipped Payments Hoping for Debt Forgiveness
But a whopping 21% of borrowers who didn’t pay deliberately skipped their payment, despite having the means, under the hope that the loans would eventually be forgiven anyway.
One Year Grace Period Underway
The government is allowing for a 12-month period following the resumption of payments, during which no late fees will be assessed, and no late payments will be reported to the credit bureaus.
Many borrowers are taking advantage of this grace period.
Some Borrowers Will Pay Before Penalties Resume
Around 18% of borrowers who are not currently making student loan payments said that they plan to resume payments in September of this year, after which point there will be serious penalties for nonpayment.
Most Borrowers Making Payments are Financially Stressed
Meanwhile, 94% of those who are making payments said it is causing a financial strain each month.
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The post Student Loan Pause: 50% Await Forgiveness, Skip Payments first appeared on From Frugal to Free.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
