The American Enterprise Institute, AEI, recently published an analysis from the latest federal student loan data: In addition to the 5.5 million borrowers currently in default, another 3.7 million are more than 270 days late on their payments and on the brink of default. Another 2.7 million borrowers are in an earlier stage of default. A total of about 12 million borrowers are alarmingly behind.
transcript:
SCOTT DETROW, HOST:
There’s big news today for millions of federal student loan borrowers. The U.S. Department of Education says it has reached a proposed settlement. It would end a Biden-era repayment plan that has been tied up in the courts for more than a year. NPR’s Corey Turner is following the story and joins us now. Hi Corey.
COREY TURNER, AUTHOR: Hello.
DETROW: Before we get to the settlement news, remind us what that repayment plan was and why it ended up in court.
TURNER: Yes. This is the Precious Education Savings Plan, but it’s better known as SAVE. It was the most flexible and generous of all the income-driven repayment plans. He promised fast loan forgiveness, monthly payments as low as $0 for low-income borrowers. But it turned out, Scott, that it was so generous that Republican state attorneys general sued the Biden administration, arguing in court that it was too generous and that if Congress had wanted to create a plan like this, it would have.
And so SAVE has been in legal limbo ever since. But now, you know, President Trump’s Department of Education agrees with these Republican AGs, so they seem to have made a deal. Under Secretary of Education Nicholas Kent said in a statement announcing the proposed settlement today, quote, “American taxpayers can now be assured that they will no longer be forced to serve as collateral for illegal and irresponsible student loan policies.”
DETROW: There are probably a lot of people listening who are enrolled in the SAVE plan. What do they need to know?
TURNER: Well, they’re in good company. There are still about 7 million borrowers in SAVE. So this settlement is a big deal pending court approval. It’s also worth saying that many of these borrowers haven’t had to make payments in years because of the legal impasse I just mentioned during which they didn’t have to make payments. But that followed the pandemic’s long payment hiatus. However, this will not only be a financial strain for many borrowers, but also a huge logistical challenge for the servicing companies that manage the federal student loan portfolio.
I spoke earlier today with Scott Buchanan. He’s the head of the Student Loan Servicing Alliance and he told me it’s going to be bumpy. That was his word. He said SAVE borrowers will have many questions. They will need a lot of holding to get back into payout. And part of the problem here is that the options available to them are a bit murky. The Republicans’ One Big Beautiful Bill created two new repayment plans, but they won’t go into effect until July, which is too late for SAVE borrowers to target now. Meanwhile, borrower advocates sounded the alarm today. Here is Persis Yu with the band Protect Borrowers.
PERSIS Y: The reality is that the SAVE plan was created because other plans were unaffordable for millions of borrowers. So many borrowers will be in the difficult position of making that decision whether to stay current on their loans or feed their families and keep a roof over their heads.
TURNER: And Scott, this settlement comes at a time when millions of other borrowers are already behind on their loan payments.
DETROW: Yes. Do we have any idea what exactly is going on there?
TURNER: Yes. According to the latest tranche of data from the Department of Education, about 12 million borrowers are either really late on their payments or already in default. That’s at least a quarter of all federal student loan borrowers. And everyone I talk to on both sides of the aisle here says it’s a crisis. And now we’re talking about how to get those 7 million SAVE borrowers, many of them low-income, back into repayment. This will be an incredible test for the department and obviously for these borrowers. And my best advice right now to those borrowers is to go to studentaid.gov and start reading about the other repayment plans there so you know what your options are.
DETROW: This is NPR education correspondent Corey Turner. thank you very much
TURNER: You’re welcome.
(SOUNDBITE BY FREDDIE GIBBS AND MADLIB SONG, “GAT D***”)
