Student Loan Update: Millions of Borrowers Aren't Paying

Millions of borrowers still aren't paying their student loans back months after payments resumed after a three-year pandemic pause, according to the latest data from the Department of Education (DOE).

The data from the DOE found that roughly 20 million people aren't making any payments on their student loans. For three years, the federal government paused payment requirements due to the COVID-19 pandemic, however last fall, the government started demanding back the $1.6 trillion borrowers owe.

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"The fact that 20 million U.S. borrowers aren't paying back their student loans is a perfect storm of financial struggle, systemic issues, and shifting expectations," Michael Ryan, a finance expert and the founder of michaelryanmoney.com, told Newsweek. "It's rarely a simple choice not to pay. Many borrowers are caught between a rock and a hard place. They're juggling rent, groceries, and maybe child care costs. Student loans often end up at the bottom of the priority list."

The recent data looks at payments from March, six months after the payment pause ended. While 20 million borrowers were making their payments, around 19 million did not, which left their accounts in delinquent, default or on pause in status.

One of Ryan's clients graduated with $80,000 in debt at the height of the pandemic. When she lost her job offer, she ended up having to work part-time at a coffee shop and couldn't make ends meet once loan payments resumed. Ryan said this is the norm for many borrowers navigating unforeseen economic circumstances.

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"The cost of living has skyrocketed, but wages haven't kept pace. Many borrowers are barely treading water," Ryan said.

The data also revealed that 7 million people were at least 30 days overdue at the end of 2023, which was the highest delinquency rate since 2016. Meanwhile, millions of more Americans saw their accounts frozen from deferment or forbearance.

"It could be that borrowers simply do not have the extra money in their budget," Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek. "When it comes to choosing between everyday necessities like groceries and gasoline versus student loan payments, the student loan is going to lose out every time."

Some borrowers might be forgoing payments as they wait to see what President Joe Biden's larger student debt forgiveness plan entails. The president's initial proposal to cancel $400 billion in loans was struck down by the U.S. Supreme Court last summer, but millions still qualify for forgiveness through public service or income driven repayment plans.

"With all the back-and-forth on loan forgiveness, some borrowers are playing a waiting game. They're hoping for relief that may or may not come," Ryan said. "There's a growing sentiment, especially among younger borrowers, that the student loan system is fundamentally broken. Some are choosing not to participate out of principle."

The Saving on a Valuable Education (SAVE) plan, for instance, cancels up to $10,000 in federal student loan debt if you make under $125,000 yearly. While SAVE is being challenged by Republicans in court, it remains unclear how the plan will hold up nationally in the coming months.

In recent days, the 10th Circuit Court of Appeals temporarily reversed a prior decision to block SAVE, meaning millions could still get their lower monthly payments or zero dollar payments.

At the time, Secretary of Education Miguel Cardona said the decision "sided with student loan borrowers across the country who stand to benefit from the SAVE Plan – the most affordable repayment plan in history."

Around 20 million borrowers are estimated to be helped by SAVE plans, and 8 million are already enrolled.

If the trend of 20 million borrowers not paying loans continues, Ryan said it could throw a wrench into the whole economy.

"That's a ton of money not moving around," he said. "It messes with everything from folks buying houses to just regular shopping. The more people who decide not to pay, the more it becomes...kinda normal. That's dangerous. We could end up in a situation where nobody trusts the student loan system anymore."

If the government is pushed hard enough by the lack of the payments, lawmakers could push for more loan forgiveness or even totally revamp how college is paid for, Ryan said.

But Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, said not paying your loans off has severe consequences for the borrower as well.

Month-to-month, your credit card is being destroyed, Beene told Newsweek. And that will make it harder to purchase a car or a house in the future. Plus, all of the current forms of student loan forgiveness plans rely on you having a steady stream of monthly payments in your history.

"This can't be put in any less of a grim fashion," Beene said. "Not paying your student loans is the equivalent to slowly killing your financial future one month at a time. The pause to payments and interest accruement is over, though, and despite what the kindest of legislative promises may say, widespread loan forgiveness is not here yet and may never arrive."