New data on federal student loan defaults

Dec 04, 2023

Presented by Sallie Mae®

QUICK FIX

NEW DATA ON STUDENT LOAN DEFAULTS: As the Biden administration crafts a new, more targeted student debt relief program, the Education Department is offering a more detailed look at the roughly 8 million Americans who were in default on their federal student loans during the pandemic.

— The new data on student loan defaults, which the Education Department does not routinely release, was made public by the agency in response to a request from members of the rulemaking panel that is debating options for Biden’s next attempt at sweeping student loan forgiveness.

— Who defaults: Most student borrowers who were in default in September 2021 were Pell Grant recipients (67 percent) and those who hadn’t completed their academic program (62 percent). Only about 22 percent of defaulted borrowers were dependents and 3.5 percent had ever taken out loans for graduate school.

Chart displaying the characteristics of student loan borrowers in default.

— Older borrowers are overrepresented among defaulted borrowers. Borrowers over the age of 50 represented nearly 20 percent of all borrowers in December 2020 but they accounted for nearly one-third of borrowers in default. Only about 5 percent of borrowers were 62 years old or older but they accounted for 10 percent of the borrowers in default.

Charter showing the breakdown of federal student loan borrowers and defaulted borrowers by age.

— The bigger picture: The Covid payment pause has essentially stopped new defaults on most federal student loans since March 2020. Even though payments have now resumed, the Biden administration’s temporary yearlong safety net program means that federal student loan borrowers won’t begin defaulting on their loans until October 2025, at the earliest.

And Biden Education Department officials have signaled that they eventually want to rewrite the rules of how the agency collects defaulted debt, including how it garnishes wages, tax refunds and Social Security benefits from defaulted borrowers.

In the meantime, the Biden administration has also separately offered borrowers who were in default before the pandemic with the opportunity to expunge their default through a “fresh start” program over the coming year.

— Targeted relief: The new data on defaulted borrowers is meant to inform the debate happening at the Education Department’s negotiated rulemaking committee over how to structure a new debt relief program.

The Biden administration has so far identified several populations of borrowers for debt relief, including borrowers who are underwater on their loans because of ballooning interest and those who’ve been paying for more than 25 years.

But the administration has said it wants to craft additional categories of relief, especially for borrowers who have a “hardship.” Some members of the rulemaking panel have been pushing for additional relief for borrowers who are in default.

— Happening this week: The Biden administration is expected, as early as today, to unveil its latest draft regulatory proposal for the rulemaking panel to consider when it meets next week. Negotiations over the plan are set to come to an end after two daylong sessions next Monday and Tuesday. The Education Department will then formally publish a proposal for public comment.

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A message from Sallie Mae®:

The current federal higher education financing system does too much for too many and not enough for those who need the most support. Students and families deserve a better, more transparent system that works as it was originally intended and protects against overborrowing. Learn more about solutions to reform the federal student loan program.

Congress

THIS WEEK — LAWMAKERS TO GRILL HARVARD, PENN & MIT PRESIDENTS: The presidents of Harvard University, the University of Pennsylvania and the Massachusetts Institute of Technology are set to testify about campus antisemitism before the House education committee on Tuesday.

— House Education Committee Chair Virginia Foxx (R-N.C.), as well as some Democratic lawmakers, have said that some higher education leaders haven’t done enough to condemn or stop upticks in antisemitism on their campuses in the wake of the Israel-Hamas war.

HOUSE DEBATES CHANGES TO FOREIGN GIFT REPORTING: House lawmakers this week are set to take up legislation that would force colleges to disclose more details about their sources of funding from outside the U.S. and impose new restrictions on their foreign dealings.

— The Republican-led legislation would be the first major overhaul of a Cold War-era requirement for colleges and universities to disclose their foreign sources of funding. The bill won three Democratic votes when it cleared the House education committee last month on a 27-11 vote.

— The bill, H.R. 5933, would require colleges and universities to report gifts of $50,000 or more (lowering the current threshold of $250,000), and it would prohibit colleges from doing business with some foreign entities, including China or Russia, without first getting a waiver from the Education Department. Wealthy universities with endowments above $6 billion would also have to report new details about their investments to the Education Department.

— The House Rules Committee meets today to prepare the legislation for floor consideration later in the week. Among the amendments that have been filed:

— An amendment by Rep. Andy Ogles (R-Tenn.) that would require colleges and universities to disclose all foreign gifts, regardless of the amount.

— Rep. Josh Gottheimer (D-N.J.) has an amendment that would prohibit colleges and universities that receive federal student aid from marketing their programs on TikTok.

— Rep. Chip Roy (R-Texas), a member of the Rules Committee, has an amendment that would terminate federal funding to colleges and universities that report any foreign gifts.

HOUSE TO VOTE ON REPEAL OF BIDEN’S LOAN REPAYMENT PROGRAM: The House is also expected to take up this week Republicans’ effort, H.J. Res. 88, to block President Joe Biden’s new income-driven student loan repayment program, dubbed the “SAVE” plan.

— The vote is largely symbolic because the Democrat-controlled Senate already rejected identical legislation last month. The Senate vote was nearly along party lines; Sen. Joe Manchin (D-W.Va.) joined Republicans in voting against Biden’s plan.

— Worth noting: House Republicans have separately sought to stop Biden’s loan repayment plan through a policy rider on education funding — a fight that’ll continue next year as Congress stares down funding deadlines in January and February.

— Key context: Biden’s plan offers borrowers more generous benefits (such as smaller monthly payments and interest subsidies), but Republicans have cried foul over price tag, which both government estimates and independent analyzes have placed in the range of hundreds of billions of dollars.

— By the numbers: About 5.5 million borrowers are currently enrolled in the program, according to the most recent data released by the Education Department. Of those borrowers, nearly 3 million had income low enough (roughly $33,000 for single borrowers) that qualified them for a $0 monthly payment for at least a year. After a year, those monthly payments will be recalculated based on borrowers’ updated income information.

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Higher Education

FITCH FORECASTS FINANCIAL CHALLENGES FOR SOME COLLEGES IN 2024: Financial pressures on some colleges and universities are expected to intensify in the coming year and the number of school closures is likely to “remain elevated,” according to Fitch Ratings’ annual outlook for higher education that’s being released this morning.

— Fitch sees a range of financial headwinds for colleges in the coming year: higher labor costs, elevated interest rates and a “very uneven recovery in enrollment” that is expected to hit smaller, less-selective institutions the hardest.

— The credit rating agency also predicts longer-term pressure on demand for undergraduate education. Fitch cites “unfavorable” trends in the number of students graduating from high school as well as “eroding consumer sentiment” about higher education.

— Fitch also anticipates a “widening” gap in the financial outlook among different types of institutions. “Flagship public universities and selective private colleges should see more favorable enrollment next year, while some regional public institutions and less-selective private schools in competitive markets may see continued softness in demand,” Emily Wadhwani, Fitch senior director, said in a statement. “The resumption of student loan payments, together with continued tight labor conditions, could further dampen overall enrollment prospects heading into 2024.”

A message from Sallie Mae®:

Education Department

FOIA CORNER — MIGUEL CARDONA’S SCHEDULE: The Education Department on Friday released Secretary Miguel Cardona’s calendar for the months he was in office in 2021, responding to several Freedom of Information Act requests for the information. Read the combined documents here.

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Syllabus

— In Florida’s hot political climate, some liberal-leaning faculty have had enough: The New York Times.

— Vouchers helping families already in private school, early data show: The Wall Street Journal.

— Some who took out parent PLUS loans to send their kids to college expect to die with debt: USA Today.

A message from Sallie Mae®:

The federal government lends upwards of $100 billion in federal student loans every year, but too often, underserved and underrepresented students lack the resources needed to pay for higher education. Without meaningful reform to the current federal financing system, that cycle will continue. Read more on Sallie Mae’s recommendations for improving our federal financing system so more students can access and complete higher education.