Two-Thirds of Borrowers Are Not Repaying Their Student Loans

Only one-third of the Americans receiving student loan bills are paying them.

So said Bloomberg in a report published Monday (Aug. 11), which cited an April estimate by the Department of Education and added that a collective $1.6 trillion in student loans are owed by Americans.

Some borrowers who are ignoring their student loan bills told Bloomberg, per the report, that they are prioritizing housing, groceries and other essentials; they are protesting the Republican legal challenges that stopped President Joe Biden’s plan to forgive the loans; or they think the loans “don’t feel real” after the U.S. government paused the requirement to repay the loans for five years due to the pandemic.

The report said the repercussions for nonpayment are “limited,” as they include a hit to the borrower’s credit score, which won’t affect those who don’t plan to seek a loan; a withholding of tax refunds; and a potential garnishment of up to 15% of their after-tax salary, which could take months to go into effect and may not affect some freelancers.

Sarah Newcomb, senior behavioral scientist at Edward Jones, told Bloomberg: “It’s possible the consequences feel too abstract to feel motivational for people.”

The Federal Reserve Bank of New York reported Friday (Aug. 8) that student loan balances, together with mortgages, were the chief contributors to an increase in household debt.

During the second quarter, student loan balances climbed for the fourth straight quarter to reach $1.6 trillion, which was $7 billion higher than in the first quarter.

Student loans were also the main driver of delinquency rates, according to the New York Fed. In the second quarter, 10.2% of student loan balances were seriously delinquent, a 31% increase from the previous quarter.

The Department of Education announced in an April 21 press release that its Office of Federal Student Aid would resume collections of defaulted student loans on May 5 after not collecting on defaulted loans since March 2020.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Secretary of Education Linda McMahon said in the release. “The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear. Hundreds of billions have already transferred to taxpayers.”

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