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Media Domino: A Blog About Student Debt ED Must Build Back a Better Student Loan System, and That Means Giving Borrowers a Second Chance

ED Must Build Back a Better Student Loan System, and That Means Giving Borrowers a Second Chance

By Ben Kaufman and Amber Saddler | October 14, 2021

Right now, roughly nine million borrowers are in default on more than $180 billion in federal student loan debt. These borrowers constitute a population greater than that of New York City, and their debts are larger than the balance of all student loans in California. Borrowers in default include servicemembers, senior citizens, teachers, and social workers. 

For many borrowers, default is not a temporary setback but an inescapable hamster wheel marked by years of poor servicing, predatory policies, and long-term unaffordability. Borrowers can be consistently stuck in or move in and out of default for decades, without ever being guided toward the protections meant to prevent federal student loan debt from becoming a life-long burden. 

Plus, for too long, the Department of Education (ED) has chosen to squeeze blood from a stone rather than change the practices and rules that keep borrowers trapped in default. ED has harassed these vulnerable borrowers for years or even decades, using its extensive powers to try to collect on debts sometimes twenty years or more after defaulted borrowers entered repayment. For those borrowers who are too poor to collect on, ED remains ready to pounce in the event that these borrowers happen to get back on their feet in the future.

We have said it before, but the fact remains—in the U.S., we treat student loan borrowers like tax cheats, perversely penalizing bright minds who sought a path to a better life. 

It’s time for ED to stop perpetuating the harm that financially strapped borrowers face once it is clear that those borrowers will never be able to pay debts that have ballooned over decades spent trapped in a broken and punishing system. ED must finally offer the borrowers it has already preyed on the most—those who have been in and out of default for several years, facing massive added costs and credit damage along the way—a second chance. Doing so is the right thing for both borrowers and the Department.

Default is Widespread and Extremely Harmful

Default is a stunningly common outcome for borrowers in the federal student loan system. In 2019, the last full calendar year before COVID, more than 1.2 million borrowers defaulted on a student loan—a rate that is the equivalent of one borrower defaulting every 26 seconds. By the time the pandemic arrived, 9.5 million borrowers were in default, and another 3 million borrowers were on their way, being at least two payments behind.

These defaults lead to massive ripple effects that damage all aspects of borrowers’ lives. For example, defaulting on a federal student loan can make it substantially more difficult for a borrower to keep a job, find a home, or even just maintain his or her physical health.

Black graduates with bachelor’s degrees are five times more likely to default on a federal student loan than white graduates with the same level of attainment, making black BA graduates more likely to default than white dropouts

When borrowers do scrape together enough money to begin building back a touch of financial security, the government comes for it. ED regularly seizes badly needed worker benefit checks meant to keep people out of poverty, garnishes Social Security benefits, and takes enormous cuts out of borrowers’ wages. And by the time the government goes after defaulted borrowers, a mountain of interest and fees has already been added to their debts, making it less likely that they will ever escape.

Plus, like so many other aspects of the student debt crisis, student loan defaults disproportionately affect people of color. One analysis found, for example, that black graduates with bachelor’s degrees are five times more likely to default on a federal student loan than white graduates with the same level of attainment, making black BA graduates more likely to default than white dropouts. Another study indicated that within six years of starting school, one-in-three Black borrowers and one-in-five Latino borrowers defaults on a student loan compared to only one-in-ten white borrowers. Indeed, there can be no doubt that student loan defaults are a civil rights issue.

Default Often Becomes a Decades-Long Trap for Borrowers—and Policy Failures are a Core Reason 

Once borrowers fall into default, the prospects of the student loan system guiding them back on track are grim. Analysts have estimated that fully 45 percent of defaulters do not find any way out, while the most recent data indicate that nearly 100,000 federal student loan borrowers each year who have managed to exit default end up re-defaulting on the same loans for a second time.

The consequences of this situation are striking, with borrowers ultimately facing years or decades of distress with no end in sight. For example, ED data recently uncovered by Senator Elizabeth Warren indicate that of borrowers who were in default before the ongoing pandemic-related payment pause, more than 2.1 million (one-in-five borrowers in default at that time) had been in repayment for 20 years or more.

Adapted from: Education Department Responses to Data Request by Senator Warren, April 2, 2021.

The message is clear: for millions of people across the country, student loan debt has become a decades-long debt trap that they will likely never escape.

This was not supposed to happen. Throughout history, Congress and ED have attempted to institute various protections for student loan borrowers that were meant to either make defaulting impossible in the first place or easy to exit when it arose. But a combination of failed policy design, abusive industry practices, and poor oversight by ED has prevented each of these interventions from delivering borrowers relief.

Income-driven repayment (IDR), which sets borrowers’ payments as a percent of their income and promises eventual loan forgiveness, was supposed to bring default rates to “zero.” But borrowers continue to default, payments under IDR remain unaffordable, and the promise of forgiveness through IDR has proven almost universally illusory

This is in part because ED regulations block time in default from being counted toward forgiveness under IDR, and also in part because the student loan industry has made a widespread practice of steering borrowers away from IDR and toward costlier options. For borrowers of color, the quality of student loan servicing is even worse.

Similarly, the student loan “rehabilitation” program that was meant to offer defaulted borrowers a pathway to being back on track has failed to live up to its ambitions. Research shows that almost half of defaulted borrowers who use the program ultimately end up once again in default, this time with massive interest and fees added to their balance. Such outcomes make it even less likely that borrowers will ever recover—but they clearly boost industry’s bottom line

The borrowers bearing the brunt of these failures are the ones ED is targeting when it continues to—or threatens to—collect on loans that have lingered in distress for decades. These borrowers were promised options for relief and pathways out of default, but time and time again these promises were broken.

Borrowers are Calling Out for Relief from Punitive, Endless Collection

ED data indicate that a shockingly small share of borrowers among the millions currently in default have successfully restored their loans during the pandemic, even though COVID-related protections were meant to make leaving default far easier for borrowers. This fact points to the severity of ongoing financial distress and the extent of continued servicing failures. 

Of course, this situation is not just about numbers. More than any default rate or delinquency statistic, the narratives that individual borrowers have submitted to federal agencies regarding their years-long experiences with default are the greatest indication of the need for relief. The following cries for help underscore the need for the Department to end the collection of years-old debts not only for the benefit of individual student borrowers, but for the overall good of our country, which suffers alongside the millions of borrowers blocked from homeownership, retirement, small business ownership, and even marriage due to their student loan burdens.

Melissa A.:

I have been a teacher for 20 years. This career path came after a year in law school that just proved the law was not the right choice for me. When I could not immediately find a job, I fell behind and defaulted on my approximately $20,000 loan for law school. About a year into my teaching career (once I found a job), my salary began being garnished. For roughly 18 years, I have had roughly $300-400 a month taken from my earnings. By my calculations, I have paid back that loan at least twice but because I was charged fines and interest and “collection fees”, that $20,000 loan now approaches nearly $60,000 in garnished wages. In the past year, having that extra money every paycheck has been a complete blessing. It has given me breathing room in my monthly budget. It has allowed me to pay down other debts. It has given me the freedom of fear that something may go wrong and I won’t be able to cover, say, a new tire for my car or a repair need for my house. Having my student debt canceled, a debt I HAVE ALREADY PAID IN FULL outside of interest and penalties, would allow me to continue having that peace of mind, especially as I age. It is ridiculous that a 50-year-old woman is still paying for the mistakes of a 25-year-old kid. Please cancel student loan debt.

A defaulted borrower from Michigan:

I have had student loans with XXXX XXXX XXXX somehow attached with Navient. Years back ( approx 15 years ) I went into default during a period of time that I lost my job and there was a mix up within the auto pay and application of deferred payments. At this time I was placed into default of my loan. Since that time until today I have been 100 % up to date with my loans but have tried with the company to have me removed, because of the negative impact to my credit score, from default. I have been up to date and current for well over a decade and they said it is completely out of their hands to remove me from default until 100 % of the loan is paid in full. On top of that last year ( XX/XX/2018) an additional approx {$5000.00} charge/loan was added to my defaulted loans that had nothing to do with interest charges and all attempts to find out where this came from have lead to receiving zero answers from the XXXX XXXX XXXX.

A borrower from Texas:

I was contacted by Navient last XXXX and told I was in default on my student loan. I explained I had only recently left college and that I had filed the paperwork for income based repayment. They told me that I had been in default on their loan for over 10 years and that I had never started repayment. Nothing had ever showed up on my credit report concerning this loan and I had never been contacted concerning this loan or the repayment. It took me 3 months to finally get them to follow the guidelines for my income based repayment. I started paying them through direct debit in XX/XX/2019. In XX/XX/2019they attempted to take over {$300.00} out of my account with is 6 times what my normal payment is. When I contacted them I was told it was because I hadn’t filled out the paperwork for income based repayment. I explained that it was not time for me to file that paperwork again. I have had these issues with them repeatedly and I am concerned because I know that a large portion of what I owe them is interest concerning a loan I knew nothing about for 10 years.

A borrower from the District of Columbia:

I have worked for the District of Columbia gov’t and been denied even applying for PSLF by the Dept of Ed – when I called I was told ‘you can not apply because DC is not a state’ and ‘you can not receive credit for prior years worked because you had not applied’. I am still employed now for 15 years with my employer and have faced numerous roadblocks: The NSLDS database has seriously incorrect info regarding my loans that I’ve been trying to get corrected for at least 10 years, as they show that I am in default on 1 of the batch of 9 loans which has prevented me from consolidating all of my college loans under the ‘Direct Loan’ program. This problem prevents me from qualifying for the COVID-19 suspension of payments and may prevent me from other forms of relief/forgiveness. The NSLDS database shows that owe $93,000 but I do not – they’ve duplicated some loan info, and the Dept of Ed has contacted them numerous times to correct it but it has not occurred. I’m told there is no way way for a borrower to reach them, only a notification can be sent from the Dept of Ed – and this has been done several times with the last referral done 6 months ago, without any response.

It is long past due for the Department to hear these borrowers’ voices and offer them a true second chance.


Ben Kaufman is the Head of Investigations and a Senior Policy Advisor at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked as a Director’s Financial Analyst on issues related to student lending.

Amber Saddler is Counsel at the Student Borrower Protection Center. A recent graduate of the Howard University School of Law, Amber joined SBPC after completing a fellowship at the Alliance for Justice where she worked on federal judicial nominations and access to justice issues.

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