40 percent of student loan borrowers missed payments in October

About 40 percent of federal student loan borrowers missed their first monthly payment this fall as the unprecedented pandemic-era freeze on student debt expired, the Biden administration announced on Friday.

The new data suggests that borrowers are experiencing a significantly higher level of delinquency and distress than they did before the pandemic. And the data confirms that millions of Americans are relying on a temporary, safety net program that the Biden administration created to help borrowers who struggle to make payments.

Some 22 million borrowers had a payment due at some point in October, but roughly 8.8 million of them — 40 percent — had failed to make their payment by the middle of November, according to the Education Department.

That’s a much higher rate of missing payments than the same stretch of time in the months leading up to the pandemic. About 26 percent of borrowers who owed a payment in October 2019 had failed to make their payment by the middle of the following month, a senior department official told POLITICO.

The Education Department emphasized on Friday that a majority of borrowers successfully paid their first monthly payment. About 60 percent of borrowers — some 13.2 million people — who owed a payment in October made the payment by the middle of last month, said the department.

“While most borrowers have already made their first payment, others will need more time,” James Kvaal, the undersecretary of education, said in a blog post explaining the new data on Friday. “Some are confused or overwhelmed about their options. We want to make sure borrowers know that our top priority is to support student loan borrowers as they return to repayment.”

The new data shows, for the first time, that millions of borrowers are availing themselves of the flexibility that the Biden administration has offered borrowers, which officials have dubbed the “on-ramp” to repayment.

As part of that policy, the Education Department will not report borrowers as delinquent to credit bureaus through the end of next September, though interest will continue to accrue on their debt. The department is also postponing the most drastic tools it has to collect debt, such as garnishing wages or seizing tax refunds and Social Security benefits.

Those forbearance policies mean that most federal student loan borrowers will not be deemed delinquent on their debts, even if they don’t pay, until the end of 2024, several months after the presidential election. Borrowers would not default on their debts until fall 2025 at the earliest.

The latest figures released by the Education Department do not include borrowers who did not owe a payment in October because they were still in school, in a grace period or had another type of deferment or forbearance. In total, roughly 45 million Americans owe federal student loans that total more than $1.6 trillion.

The data release also excluded the several million borrowers who were retroactively granted a forbearance because of billing mistakes or other loan servicing errors that the Education Department previously disclosed.

The data does, however, include about 3 million borrowers whose income is low enough that they owe $0 monthly payments under President Joe Biden’s new student loan repayment program known as the “SAVE plan.” The Biden administration has been promoting that income-driven repayment option as a way for borrowers to manage their debt as payments turn back on.