Government Hits Reset on Student Loan Defaults

About a third of federal student loan borrowers have experienced default—typically defined as having gone at least 270 days without payment—at some point over the past two decades, according to a survey done for The Pew Charitable Trusts. And among this group of borrowers, nearly two-thirds defaulted multiple times.

The survey, conducted in 2021, focused on borrowers who took out their first federal undergraduate student loans between 1998 and 2018. But the finding on the prevalence of redefault takes on new relevance now as the Department of Education unveils plans to give borrowers a “fresh start” in repayment.

Under the initiative announced in early April, borrowers with defaulted federal loans will resume repayment at the end of the ongoing pandemic-related pause—which began in March 2020—with their loans in good standing. The new policy will provide borrowers a critical reprieve from the potentially severe penalties that can be imposed on them while in default. Still, the survey findings about the frequency of redefault indicate that a clean slate may be no guarantee that struggling borrowers will be able to keep their loans current in the long run.

Borrowers who receive a fresh start could still be vulnerable to serious repayment problems without other major changes to the current system because the challenges that borrowers cited as the cause of their initial default may persist after they get their loans back in good standing…

Same as it ever was. The reasons for original default, often repeating.

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