Three-Fourths of Student Loan Borrowers are not making payments.
This is an improvement.
At the beginning of last year, we reported that the student loan non-payment rate was over 80%. By last summer, the non-payment rate had grown to 85.5%. The most recent Department of Education data shows that the current non-payment rate for federal student loans is about $73% across all borrowers. Excluding current students and recent graduates from the data gives a non-payment rate of 66%, or two-thirds of all matriculated borrowers.
Interestingly, no mainstream media are even reporting on this metric.
This increase in payment rate was expected as borrowers ease into repayment after 3.5 years of non-payment and a year-long “on-ramp to repayment” where collection activities were suspended.
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 expired last fall, and the student loan collection industry has resumed their extraordinarily harsh collection tactics.
As 12.2 million borrowers fall out of deferment and forbearance, there will be a wave of defaults the likes of which this country has never before seen. A recession (or worse) will exacerbate this even further. It would not be surprising to see 50%- or more- of matriculated borrowers in default on their federal student loans in a year’s time.
In the absence of standard consumer protections, especially bankruptcy rights and statutes of limitations, a predatory feeding frenzy has begun against 23 million citizens at the hands of the student loan industry- which (perversely) can makes huge profits- at taxpayer expense- on defaults through loan rehabilitation, where defaulted borrowers sign for new, much larger loans. The taxpayers pay a 16% commission on these rehabs, which is then put onto the backs of the borrowers.
75% (perhaps more, according to Moody’s) of these borrowers will wind up in default again.
A virtual army of “Student Loan Lawyers”, “Debt Coached”, “Student Loan Planners”, and other nefarious, predatory groups are pushing this hard, to the great financial harm of those they coerce into doing this.
We’ve already seen a spike in human tragedies associated with this predatory debt. Last 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.
There’s also the case of the Nelson Family, in Broken Arrow Oklahoma. The family declared bankruptcy in an effort to discharge their student loans, which comprised 94% of their debt. They found out the hard way that student loans are uniquely non-dischargeable. They got all of the shame of a bankruptcy, and none of the relief. The tragedy that ensued is, frankly, too horrific to describe.
These tragedies could have been prevented, had policymakers in Washington been doing their jobs, instead of ignoring- or even exploiting- this problem.
The stress, despondency, and anger of the estimated 38 million borrowers who are underwater on their loans ( including many who are currently paying) will almost certainly result in similar, violent acts of despair.
There will be much more blood on the hands of the policy makers and bureaucrats who saw this coming months or even years ago.
Both political parties 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, betrayed borrowers in 2022 by killing their own bankruptcy bill at the 11th hour of that Congressional session, and took their bankruptcy pledge completely out of their 2024 Party Platform.
The Democrats also sabotaged their own efforts on student loan cancellation during Biden’s Administration. The cancellations they ultimately did point to through the various repayment programs on Biden’s watch were, in fact, very small compared to the typical growth of the loan portfolio over 4 years.
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. It would take the lending program (and all the profit it generates) from taxpayers give it to the private sector. In the meantime, it would gut the lame, feckless cancellation programs already in place.
Trump’s first moves- calling for the dismantling of the Department of Education, mass layoffs at the Department of Education and moving the federal loan portfolio to the Small Business Administration- appear to be right in line with Project 2020’s goals, which could even include a fire-sale of the federal student loan portfolio to Wall Street.
Similarly, the Department of Education (which still exists, still owns/controls the loans) has announced plans to make big changes to the Public Service Loan Forgiveness programs, and other repayment programs.
The Republicans have always fought against the borrowers, and 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.
The fight is coming to them, whether they like it or not.
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