Student loan payments were on pause for more than three years, and then Congress restarted them. Now, two months after repayments began, Americans are beginning to see the effects and the consequences.
In October 2023, the first month of the restart, 22 million borrowers had a payment due. Of that total, 60%, or 13.2 million, made a payment, according to an announcement from the U.S. Department of Education in December, with 4 million making a payment for the first time. Meanwhile, 40% or 8.8 million borrowers did not pay.
In a blog post on the Department’s website, Undersecretary of Education James Kvaal said these numbers exclude people whose repayment restarted in the fall but did not have a payment due in October. It is unclear how many Black people were among those who had a payment due and missed it.
However, previous research shows 57% of Black borrowers have at least $25,000 in student loan debt. And in the past, nearly a quarter reported being behind on their payments, according to the Education Data Initiative.
The Department was not surprised by the situation. In June 2023, the Biden-Harris administration announced a “12-month ‘on-ramp’ to repayment” from October 1, 2023 to September 30, 2024. During that time, missed payments will not be delinquent, placed in default, sent into debt collection, or reported to credit bureaus. The loans, however, will continue to accrue interest.
“Borrowers who are still confronting the challenge of making room for student loans into their monthly budgets are protected from the worst consequences of missed payments through the on-ramp,” Kvaal said.
Before the Supreme Court struck down the proposed broad loan forgiveness plan, Kvaal warned this could happen. CNBC reported that in a November 2022 court filing, Kvall said, “Unless the [Education] Department is allowed to provide debt relief, we anticipate there could be a historically large increase in the amount of federal student loan delinquency and defaults as a result of the COVID-19 pandemic.”
At the same time, the administration has canceled around $132 billion in student debt for over 3.6 million borrowers. They have utilized the Public Service Loan Forgiveness Plan and the Borrower Defense Loan Discharge program for debt forgiveness.
And in August 2023, President Biden announced a modified Income-Driven Repayment Plan — Saving on a Valuable Education. Under the SAVE plan, borrowers would see significantly lowered payments because monthly payments are calculated based on discretionary income, or the difference between the adjusted gross income and 225% of the Department of Health and Human Services’ poverty guidelines. And it eliminates the remaining interest accrued after the monthly payment amount, preventing balances from growing each month.
“While most borrowers have already made their first payment, others will need more time,” Kavaal said. “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.”
