As Student Loan Collections Restart, Millions Are Not Yet Paying

Just over half of the millions of borrowers who received their first federal student loan bills in years in October — after the pandemic freeze ended — have paid the bills, the Education Department said on Friday.

Forty-three million borrowers collectively owe the government $1.6 trillion in student loan debt. In March 2020, as the coronavirus pandemic roiled the nation’s economy, President Donald J. Trump’s administration imposed a freeze on collections as an emergency relief measure. The moratorium was extended nine times by Congress, Mr. Trump and his successor, President Biden — until this fall, when it finally ended.

Officials had long warned that getting borrowers accustomed to paying again after such a long break would be a rocky process, especially after the Supreme Court in June overturned Mr. Biden’s $400 billion plan to forgive up to $20,000 in debt per borrower. Tens of millions of people would have benefited from that relief.

Instead, 22 million people had to make their first payment in years in October as the government restarted its collection machinery. Sixty percent of them paid the bill by mid-November, according to James Kvaal, the Education Department’s under secretary. (Borrowers who are still in school or recently left do not yet owe on their debts. Also, some borrowers’ payment deadlines were extended because of loan servicing errors.)

That leaves nearly nine million borrowers who had payments due but have not yet made them. Many people “will need more time,” Mr. Kvaal said Friday in a written statement. “Some are confused or overwhelmed about their options.”

Borrowers and consumer advocates say the reasons so many people aren’t paying run the gamut from administrative delays — typically caused by backlogs at the four loan servicers hired by the government to collect payments and guide borrowers through their repayment options — to an inability to afford the bill.

Spencer Dixon, 32, is a student loan expert: He has a master’s degree in higher education policy from George Washington University and works as an adviser to the Student Debt Crisis Center, a nonprofit advocacy group. But even he is befuddled by the current status of his loans.

In early 2020, Mr. Dixon completed his certification for an income-driven payment plan. At the time, he was unemployed and had no income, which qualified him for a $0 monthly payment. Immediately after, the pandemic moratorium took effect, pausing his payments for more than three years.

Mr. Dixon assumed that when billing resumed in October, he would pick up where he left off — with a $0 payment. So he was surprised when he logged into the website of his loan servicer, Nelnet, and it said he was in forbearance.

That’s potentially a problem for him, because time spent in forbearance usually does not count toward the government’s loan elimination programs, including public-service loan forgiveness, which Mr. Dixon is pursuing. He has made multiple calls to Nelnet — the government’s largest loan servicer, with more than 14 million accounts — to try to untangle his loans. One lasted four hours, including long stretches on hold. Nelnet declined to comment, directing questions to the Education Department.

Mr. Kvaal acknowledged that restarting collections after the yearslong pause is “an unprecedented challenge for both borrowers and the Department of Education.”

Hannah Luna, 35, who works for an educational nonprofit in New York City, also had her return to repayment postponed because of an administrative delay at Nelnet. Ms. Luna applied in September for Mr. Biden’s new income-driven payment plan, Saving on a Valuable Education, or SAVE.

More than five million borrowers have enrolled in the plan, but the glut led to monthslong processing delays for many. Ms. Luna just received a notice with her new monthly payment amount — $316 — and her first due date, Dec. 20.

She plans to pay, but it will be a stretch. Rent, health care and other bills consume more than half her paycheck. During the pandemic timeout, she was able to pay down her credit cards and build a small savings account.

“It was the first time I was like, oh, I paid all my bills and I still have money to pay for groceries, and I have this small amount of money sitting to the side — this is amazing,” she said. Resuming loan payments will wipe out that cushion.

Scott Buchanan, the executive director of the Student Loan Servicing Alliance, the servicers’ trade group, said the repayment rate so far is “roughly around what I would have expected.”

He added, “The real test is, where are we in January? That’s when I think we’ll have some sense of whether repayment rates are trending lower than they were before the pandemic.”

Some people said they simply can’t make the financial math work. Josh Visnaw, 37, is a project manager for a nonprofit voter registration effort at the Harvard Kennedy School in Boston. Earning a bachelor’s and master’s degree left him more than $70,000 in debt.

Income-driven payment plans like SAVE cap borrowers’ payments at 10 percent of their discretionary income, but the government’s formula for calculating that doesn’t factor in housing costs and other expenses, like private loan debts or child support. Mr. Visnaw’s monthly outlays include $2,500 for rent, a $320 private student loan bill and medication and medical appointments to manage his Type 1 diabetes.

Even on the SAVE plan, which he signed up for, Mr. Visnaw’s total private and federal student loan payments would be nearly $1,000 a month. He applied for and was granted a hardship forbearance, which postponed his payment date till January. This month he applied to extend the forbearance.

He’s hoping to keep his payments paused till July, when an additional element of the SAVE plan takes effect that will reduce the payment on undergraduate loans to a maximum of 5 percent of income. Monthly loan bills for millions of borrowers, including Mr. Visnaw, will drop at that time.

“It’s not an option for me to even consider adding an extra $600 or $700 a month to my expenses,” he said. “It’s not ‘that would be difficult’ — it’s not just not a possibility.”

Borrowers who simply don’t, or can’t, pay won’t face the most draconian consequences until at least late 2024, thanks to a policy the Biden administration calls the “on-ramp to repayment.” Through next September, borrowers who miss payments will not have the delinquency reported to credit bureaus and will not have their wages or tax refunds garnished, a common collection tactic used on those who default on their debt.

The policy is intended to shield “borrowers who are still confronting the challenge of making room for student loans into their monthly budgets,” Mr. Kvaal said.