According to the Federal Student Aid (FSA) center, 24% of all Direct Loan borrowers were delinquent or in default at the end of 2018. Since June 2018, over 1 million Direct Loan borrowers have entered default.
Defaulting on a federal student loan occurs when the borrower falls 270 days behind on their payments. Low-income students, African American students, and students seeking degrees from for-profit institutions are the most likely to enter default 3 years after leaving school.
While a million borrowers have defaulted on their loans in the last 12 months, millions more are on the brink of defaulting. U.S. Department of Education data suggests 1 in 4 borrowers that attended for-profit schools are 31+ days delinquent, and half of those borrowers left their program without earning a degree.
Consequences of Default
Financial hardship hits single parents and lower income families the hardest. Defaulting on student loans negatively impacts a borrower’s credit score and can even lead to wage garnishments and penalties. Student loan default is more prevalent because it’s a lower priority to other forms of debt. Food, shelter, and transportation bills will be paid first, leaving student debt to accumulate.
Federal Default is Avoidable
The tragedy to student loan default is the number of federal protections available to borrowers to avoid default. Unfortunately, those programs are not well advertised and require effort to maintain enrollment.
Income-Driven Repayment (IDR) Plans are incredibly effective to prevent default. Payments are tied to the borrower’s income, with some plans lowering payments to as little as $0. However, many borrowers are unaware of these options, and others are unsure how to apply.
Enter Student Loan Benefits
More than ever, employer provided student loan benefits are a valuable financial wellness tool to help borrowers avoid default and manage their student loan repayment. IonTuition helps employees find the best repayment plan for their financial situation, and has concierge advisors that will call the student loan servicer with the employee on the line to help them enroll into a new repayment plan. IonTuition will notify the employee when it’s time to re-enroll and will monitor their student loans for any status changes.