Student debt: 8 million Americans are in default. How to help them.

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Of the 43 million Americans with student debt, about a fifth were in default this summer, writes Sarah Sattelmeyer.

The time of dreams

About the Author: Sarah Sattelmeyer is the Project Director for Education, Opportunities and Mobility in the New America Higher Education Initiative.

More … than eight millions Americans defaulted on their student loans in June. They represent about a fifth of 43 million Americans who held federal student debt. In the year leading up to the pandemic, more than a million the borrowers defaulted. These headline numbers represent a problem that is both widespread and reflects deep structural inequalities, discrimination and racism not only in our higher education system, but also in the foundation of how families access education. capital and create wealth.

For example, black borrowers are over twice as likely and Hispanic or Latino borrowers are more than 1.5 times more likely to default on their loans than their white peers. Low-income students, those with caregiving responsibilities, students with leaving school without a diploma, and those who are first in their family to attend university, among others, have high delinquency rates. The pandemic hit these groups in particular hard.

Advocates and policymakers have proposed several solutions. Upstream of the higher education system, free community college, funding to promote college completion and retention, and an expansion of the offer based on the needs Pell scholarship– as envisioned during the Build Back Better Act negotiations – would reduce the need to borrow and help more students get a return on their higher education investments. On the back-end, recent actions to make the Public service loan forgiveness program, defending the borrower against repayment, and exits from total and permanent disability easier to access and calls to to cancel some or all student debt have and would ease the burdens of many people who have difficulty repaying.

But other important vehicles for higher education reforms are moving beyond the headlines (and often behind the scenes). The US Department of Education is obligatory conduct a process called “negotiated regulation”To implement certain laws passed by Congress. The process engages external stakeholders affected by the programs under review. While this sounds wonky and is unlike most other federal agencies, it is critically important and shapes the way federal programs are designed and managed.

The ministry is currently carrying out such rule making reform the main elements of the student loan repayment system. Although it was not originally included in the list of topics to cover, lawyers have insisted that student loan default be added to the agenda. Addressing the default system issues, among the broader reforms, will ensure that we use a more holistic approach and create a more borrower-centric system.

First, we need to help borrowers avoid fault ensuring that repayment terms are affordable, accessible and of reasonable duration. Once they have started repaying their loans, borrowers can choose from a plethora of repayment plans. Income-oriented plans are important options that tie borrowers’ monthly payments to their income and family size. They are more affordable for many and reduce missed and default payment rates. Despite the availability of such plans, not all who could benefit from them can and do not have access to them. Too many borrowers continue to struggle with overpayments, growing balances, long repayment periods, and difficulties accessing and keeping plans.

Second, we must ensure that those at fault can get out more easily and quickly by creating additional channels. Once borrowers default, it’s easy to navigate. The system is complex and confusing: borrowers’ accounts can be transferred multiple times after their default entry, and the means to exit are limited. Each exit path has different terms, conditions, and associated costs. Some can only be used once. In addition, the default rates are high.

Finally, we must ensure that the consequences of the default less punitive. Being in default comes with serious consequences that endure regardless of the age of borrowers’ debts. Borrowers can have their wages garnished, their tax refunds and federal benefits garnished or withheld, pay high collection fees, lose access to benefits, and have their credit damaged. And the combination of these means that borrowers can pay more and at a faster default rate than they would in any repayment plan, while still earning interest.

Guest comments like this are written by authors outside of the Barron’s and MarketWatch newsroom. They reflect the views and opinions of the authors. Submit proposed comments and other comments to [email protected].


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