Close to nine million borrowers have missed their first student loan payment after the pandemic pause ended, according to the Department of Education. This number accounts for about 40% of the 22 million people who had student loan payments due in October. For comparison, before the pandemic pause went into effect, less than 26% of borrowers missed their payment in October 2019.
The payment pause began in March 2020 in the midst of the COVID pandemic and ended in October, after more than three years. Since then, the Department of Education has taken a “first look” at repayment data finding that more than 28 million borrowers are supposed to be resuming payments.
The Department of Education has reported that some borrowers are confused or overwhelmed about their options. The agency, however, wants borrowers to know that its top priority is to support them as they return to repayment. The Biden administration has set up an “on-ramp” program to protect borrowers from the harshest consequences of missed payments such as delinquency, default, and mandatory collections for the next year.
According to the Department of Education, the “on-ramp” program will enable borrowers to delay payments without incurring fees or penalties. The administration is also lowering interest rates for borrowers with large loans. This program aims to reduce the burden of student loan debt, giving borrowers the chance to stay afloat without having to worry about the adverse effects of missed payments.
The current situation poses a challenge for loan servicers who, according to the Consumer Financial Protection Bureau, are struggling to keep up with the high level of student loan defaults. These defaults put borrowers at risk of severe credit damage, wage garnishments, tax refund seizures, and even lawsuits.
In addition, advocates have been calling for student loan forgiveness for some time to alleviate the burden of student debt. The current situation amplifies the urgency for this option to help borrowers cope with their finances better.