The federal student loan “on-ramp” period officially ended at midnight on September 30. This on-ramp gave borrowers 12 months to adjust to making their student loan payments without negative consequences for missed payments.
Many Student Loan Borrowers Did Not Make Payments During the On-Ramp Period
Multiple reports have found that between 25% and 40% of borrowers did not make on-time payments during the on-ramp period. According to a study by Credit Karma, 69% of borrowers who missed payments during this period fear they will be unable to pay down their accrued interest.
Delinquent Borrowers May Get Another Reset
During the on-ramp period, servicers placed delinquent borrowers into automatic forbearance once they became more than 90 days delinquent. Currently, there are a record 2.16 million borrowers in the 31-to-90-day delinquent status, and over 1 million who are 91-180 days delinquent.
This could give all borrowers an equal starting point, but based on their behavior over the last four years, it’s likely that many borrowers will continue to avoid making payments.
Colleges need to start moving their default aversion plans into high gear. Borrowers have been hesitant to resume payments due to promises of loan forgiveness by the Biden administration.
Biden’s Student Debt Relief Plan Blocked (Again)
Efforts by the Biden administration to provide student loan debt relief remain in legal jeopardy. Following the Supreme Court’s decision to block Biden’s initial student debt relief plan of up to $20,000 last year, the administration proposed a “Plan B” in April. This plan would provide $73 billion in relief for 27.6 million borrowers who meet several qualifications. The Biden administration promised to deliver this relief before the November elections and even emailed borrowers about how to opt out if they did not want the automatic relief.
This effort was met with lawsuits that led to a temporary restraining order (TRO) against the plan. Earlier this week, a judge in Georgia overturned the TRO and moved the case to a Missouri court, which has again halted the plan until the courts can make a final ruling on its legal standing.
The Education Department released a statement disagreeing with the court decision, saying, “We will continue to vigorously defend these proposals in court. We will not stop fighting to fix the broken student loan system and provide support and relief to borrowers across the country.”
The Biden administration is still defending its SAVE income-driven repayment plan in court. The next court hearing on SAVE is scheduled for October 15.