In a Dec. 15 blog post, Department of Education Under Secretary James Kvaal wrote that just 60 percent of the approximately 22 million people who had their student loan payments resumed have made a payment by the middle of November. This is equal to about nine million individuals who have not submitted a payment.
The data does not include borrowers who did not have a payment due in October, have returned to school, or have been covered by the federal government’s recent measures responding to servicing errors.
Mr. Kvaal noted many borrowers “are confused or overwhelmed about their options.” He added that repayment challenges were common before the public health crisis “because they were delinquent or obtained a deferment or forbearance.”
“In the meantime, we will continue to give borrowers the information and support they need to take advantage of all of the benefits of federal student loans,” he wrote in the post.
“We have given clear guidance to our student loan servicers that they will be held accountable if they don’t meet their basic contractual obligations to borrowers and the Department.”
He added that borrowers struggling to budget monthly student loan payments will be “protected from the worst consequences of missed payments through the on-ramp.”
The Department of Education established the 12-month on-ramp program. This is an initiative that will last until September, offering leniency to borrowers and preventing them from facing “the harshest consequences of missed payments,” including default, delinquency, and mandatory collections.”
It is estimated that roughly 43 million borrowers owe the U.S. government about $1.7 trillion in student loan debt.
As part of the government’s response to the pandemic in March 2020, then-President Donald Trump implemented a freeze on student loan payments. It was then extended nine times by Congress and former President Trump and President Joe Biden.
The emergency relief measure expired in October, while interest on student loans started accruing in September.
Over the last 18 months, the current administration has approved $132 billion in student debt cancelation, impacting more than 3.6 million people.
“From Day One of my Administration, I vowed to improve the student loan system so that a higher education provides Americans with opportunity and prosperity — not unmanageable burdens of student loan debt,” President Biden said in a statement.
Borrowers Struggling, Polling Shows
When it was announced that student loan payments would resume, various surveys warned that borrowers would struggle to make payments.The Supreme Court struck down the plan in June.
Many borrowers were also unaware of how much student loan debt they had.
The same poll found that most borrowers used the would-be student loan payments to pay for the basics, like food and rent.
Effects on the Economy
Economists have warned that the resumption of student loan bills for 40 million Americans could have consequences for the broader economy.The Kobeissi Letter, a financial research newsletter, projected that about $9 billion in consumer spending would be eliminated every month.
“The retail sector has seized an opportunity during the pandemic due to limited inventory growth over prior years and pent-up demand. But financial buffer losses could shake up the retail demand in response to young consumers’ change of budget and even potential cutbacks on service spending,” Moody’s economists wrote.
Retailers have taken notice.
