More than 5 million people are currently in default when it comes to their student loans, according to CNBC. On Monday, May 5, the federal government will resume collection efforts.
How many people have student loan debt?
Currently, more than 42 million Americans have student loan payments. That debt amounts to about $1.6 trillion. Of those 42 million, 5 million are in default. As a result, the federal government can try to recoup that money by going after debtors’ paychecks, income tax refunds, Social Security benefits or disability.
What about the previous administration’s efforts to give borrowers relief?
Collection efforts have been on hold for several years, as the Biden administration tried to give relief to those struggling to make payments. Millions of borrowers were on the Biden administration’s SAVE repayment plan. However, a federal appeals court blocked the SAVE plan in February. Plaintiffs argued that the Biden administration was trying to find a way to forgive student loan debt on the heels of the U.S. Supreme Court striking down debt cancellation in 2023.
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About 11.9% of Americans with student loan debt have defaulted on their loans, that’s 5 million out of 42 million with loan payments.
SAVE reportedly stipulated lower monthly payments and quicker debt elimination for some borrowers with small balances. The appeals court ruling sent borrowers into interest-free forbearance. That policy is now ending. Many of those borrowers are now forced to switch into another repayment plan.
The Trump administration has gotten rid of forgiveness for some student loan repayments plans and eliminated staff at the Department of Education. CNBC reports that many of the laid off employees assisted borrowers, and that has led to long wait times on the phone for those seeking advice and help.
The new administration has been critical of Biden’s efforts to give financial relief to those who had access to a college degree.
“Americans will no longer be forced to serve as collateral for irresponsible student loan policies,” Secretary of Education Linda McMahon said.
Mike Pierce, the executive director of the Student Borrower Protection Center countered, saying that restarting collections “will further fan the flames of economic chaos for working families across this country.”
What are some of the other ramifications of student loan debt and defaults?
Credit scores are another concern. The Federal Reserve warned in March that more than 9 million borrowers who are late on their payments could see their score drop by more than 170 points. Such credit scores affect a person’s ability to borrow money, with a score of 670 or higher considered to be good.
