Student Loan Non-Payment Rate is Approaching 90%.
At the beginning of the year, we reported that the federal student loan non-payment rate was 80%, despite mainstream media reports claiming otherwise.
At that time, we found that when taking into account people in deferment, forbearance, and also those who had “zero-dollar” payments, only 7.8 million people (18%), of 43.4 million borrowers were actually making payments on their loans.
Last month, however, the Biden Administration paused payments for 3 million SAVE Plan borrowers in response to legal challenges to the plan. Assuming that the previous non-payment rates have not changed, and using the same methodology as previously (where it is assumed that roughly half of SAVE Plan borrowers have “zero-dollar” payments, this gives us a new “payer” count of 6.3 million people, out of 43.4 million borrowers. In other words: 85.5% of all federal student loan borrowers are currently not paying on their student loans.
If we exclude the 7.6 million people who are currently in-school, or on their grace periods, this is 6.3 million of the 35.8 million people who should be paying, aren’t. This still gives us a non-payment rate among matriculated borrowers of 82.4%.
Lending systems fail from time to time. We saw the sub-prime mortgage meltdown in 2008, where 20% of these mortgages went into default. There was the Savings and Loan collapse of the 1980’s, where 40% of S&L institution were closed. Given these federal student loan repayment rates, and most other metrics/benchmarks, it is clear that the loan program has failed far worse than even those two examples.
If policy makers in Washington choose not to address this problem meaningfully and immediately, there will be catastrophic consequences. The “on-ramp” to repayment since payments resumed last fall will expire at the end of this summer, and the student loan collection industry- will resume their extraordinarily harsh collection tactics. Defaulted loans, which had happened to well over a quarter of student loan borrowers prior to covid, are likely to increase to around 70% of all borrowers.
In the absence of standard consumer protections, like bankruptcy rights, statutes of limitations, and others, there will be a predatory feeding frenzy against 25 million citizens at the hands of the student loan industry- which (perversely) makes huge profits on defaults- the likes of which has never before been seen in this country.
38 million people are already in great distress about their loans since last fall. Earlier this year, for example, we saw a disgruntled borrower in Pennsylvania, who unsuccessfully attempted to sue the Department of Education about his loan, literally declare war against the federal government, and murder his own father, a federal pensioner.
Around the time that early voting begins in October- 2 months from now- the exacerbation, stress, and likely violent acts of these borrowers will increase dramatically. There will be blood on the hands of policy makers and bureaucrats, who saw this coming months or even years ago.
Both political parties, however, have essentially abandoned student loan borrowers. The Democrats, who had been promising to return standard bankruptcy rights to student loans since 2005 and included this in the DNC Party Platforms of 2016 and 2020, have taken this pledge completely out of the 2024 Platform, by all indications. The loan cancellations they are pointing to ($160 Billion in the past 4 years) are incredibly small compared to the growth of the loans during the same time period (nearly $800 Billion).
Kamala Harris’ career, in fact, was launched and is now promoted by a family who deserve the Lion’s share of credit for killing the modest loan cancellation that Biden attempted last year. Despite the friendly-sounding rhetoric from her and the Democrats, There is every reason to believe that she will only serve to perpetuate this failed, nationally threatening loan scam on her term should she win the Presidency.
The Republicans don’t bother to hide their disdain for student loan borrowers. Project 2025 is a vicious, predatory wish-list for the student loan industry, would steal Trillions from both taxpayers and borrowers under this predatory lending regime, would gut even the lame, feckless cancellation programs already in place, and even worse.
The Republicans have turned against the borrowers, so the Democrats feel no need to fight seriously for them. This is an incredibly harmful political dynamic for nearly 40 million people losing sleep, or worse, over their student loans.
Suffice it to say, student loan borrowers had better start fighting for themselves by demanding (at a minimum) the return of standard bankruptcy protections to the loans. Because the people on both sides of the aisle in Washington are fighting AGAINST them, and this will get ugly. Very Soon.
The fight is coming to them, whether they like it or not.
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