The American Enterprise Institute, AEI, recently published an analysis From the latest federal student loan data: In addition to the 5.5 million borrowers who are currently in default, another 3.7 million are more than 270 days behind on their payments and are on the brink of default. Another 2.7 million borrowers are in the early stages of delinquency. In total, some 12 million borrowers are worryingly behind.
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SCOTT DETROW, HOST:
There is great news today for millions of federal student loan borrowers. The US Department of Education says it has reached a settlement proposal. It would end a Biden-era payment plan that has been stalled in court for more than a year. NPR’s Cory Turner has been following the story and now joins us. Hi Cory.
CORY TURNER, BYLINE: Hello.
DETROW: Before we get to the settlement news, remind us what this payment plan was and why it ended up in court.
TURNER: Yes. It’s the Savings on a Valuable Education plan, but it’s better known as SAVE. It was the most flexible and generous of all the income-based repayment plans. He promised accelerated loan forgiveness, monthly payments as low as $0 for low-income borrowers. But it turns out, Scott, that he was so generous that Republican state attorneys general sued the Biden administration, arguing in court that it was too generous and that if Congress wanted to create a plan like this, it would have done so.
And so SAVE has been in legal limbo ever since. Now, you know, President Trump’s Department of Education agrees with those Republican attorneys general, so they seem to have reached a deal. Deputy Secretary of Education Nicholas Kent said today in a statement announcing the proposed settlement: “American taxpayers can now rest 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 around 7 million borrowers in SAVE. So this agreement is very important, pending judicial approval. It’s also worth saying that many of these borrowers haven’t had to make payments in years due to the legal limbo I just mentioned, during which they didn’t have to make payments. But this followed the long pause in pandemic payments. However, this will not only be a financial burden for many borrowers, it will also be a huge logistical challenge for the servicing companies that manage the federal student loan portfolio.
I was talking to Scott Buchanan today. He is the director of the Student Loan Services Alliance and he told me that the situation is going to be complicated. That was his word. He said SAVE borrowers will have many questions. They will need a lot of support to pay again. And part of the problem here is that the options available to them are a little murky. Republicans’ One Big Beautiful Bill created two new repayment plans, but they won’t be implemented until July, which is already too late for SAVE borrowers’ purposes. Meanwhile, borrower advocates were sounding the alarm today. Here’s Persis Yu with the Protect Borrowers group.
PERSIS YU: The reality is that the SAVE plan was created because the other plans were unaffordable for millions of borrowers. Many borrowers will find themselves in the difficult situation of making the decision to stay current on their loans or feed their families and keep a roof over their heads.
TURNER: And Scott, this deal comes at a time when millions of other borrowers are already far behind on their loan payments.
DETROW: Yes. Do we have an idea of 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 actually behind 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 says this is a crisis. And now we’re talking about how to get these 7 million SAVE borrowers, many of whom are low-income, to pay again. This will be an incredible test for the department and obviously for these borrowers. And my best advice right now for these borrowers is to go to Studentaid.gov and start reading about the other repayment plans that are out there so you know what your options are.
DETROW: That’s NPR education correspondent Cory Turner. Thank you so much.
TURNER: You’re welcome.
(SOUNDBITE OF FREDDIE GIBBS AND MADLIB SONG, “GAT D***”)
