:max_bytes(150000):strip_icc()/GettyImages-2194687445-f90c3f8315414f41a4f42d8d5364a4cf.jpg "The Student Loan Default Rate is Already High. The End of SAVE Could Make It Worse")
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KEY TAKEAWAYS
- More than 7 million borrowers currently in forbearance under the Saving for a Valuable Education program will soon have to transition to another repayment plan and resume payments for the first time in years.
- Because these borrowers’ monthly payments will increase, and several major changes have been made to student loan policies, many SAVE borrowers will struggle to resume payments.
- That could add to the millions of people already in default or delinquency.
Millions of federal student loan borrowers are currently in default or are delinquent on their debt, and this number is likely to increase as millions will have to restart payments.
On Dec. 9, the Department of Education said it is ending the Saving on a Valuable Education repayment plan. That means the 7.43 million borrowers still enrolled in it will need to transfer to another repayment plan; however, a specific deadline for when these borrowers must move has not been announced.
Critical Details Are Scarce
Borrowers on the SAVE plan, created under the Biden administration, have been in forbearance for more than a year and a half after the income-driven repayment plan became tied up in several lawsuits.
The Department of Education has not specified when SAVE borrowers must change plans, but processing the transfer of millions of borrowers will take some time, said Sarah Austin, a policy analyst at the National Association of Student Financial Aid Administrators.
“One of the concerns about how long this process might take is that we have seen quite a big backlog in income-driven repayment plan applications,” Austin said. “The Department has reduced its staffing, [and that] could definitely also impact its ability to process all of these transfers from one plan to another repayment plan.”
Why This Matters
Borrowers who default on their debt may have part of their wages garnished by the Department of Education, resulting in reduced spending money. This could have long-term economic consequences as it may slow economic growth and lower federal revenue.
Many borrowers who must eventually transition to another repayment plan will have more expensive payments than they would on the SAVE plan. For some, they will be hundreds of dollars more per month.
“For many of these borrowers, their payment amounts may be higher than what they were originally anticipating,” Austin said. “If they had a budget in mind for how much they could afford on their monthly payments, it’s going to be higher than that. That is concerning.”
Some Borrowers Have Never Made a Payment
Resuming payments will be a massive adjustment for several reasons, Austin said.
First, the SAVE plan has been in limbo for more than a year and a half due to legal issues, during which time borrowers were in forbearance. Additionally, many SAVE borrowers had $0 monthly payments, and before that, all payments for all plans were paused during the COVID-19 pandemic. That means this will be the first time in six years that some borrowers will have to make any kind of student loan payment.
That also means there are people who have graduated from college since the pandemic who have never experienced a “normal repayment landscape,” Austin said.
“I think it’s concerning just to think about their lifestyle and their budget, and how they have not had to make payments and now will be subject to actually making a monthly payment,” Austin said. “Of course, this could add to the delinquency and default rates.”
Borrowers in Default Could Have Their Wages Garnished
When SAVE borrowers resume their payments, the number of borrowers who are behind on their payments may increase even more.
Before the pandemic, 2.76 million borrowers were delinquent, meaning they had missed at least one payment, and approximately 8.08 million borrowers were in default, which occurs after more than 270 days of missed payments and carries more severe consequences than delinquency. However, following the COVID-19 pandemic payment pause, which began in March 2020 and ended in October 2023, more borrowers struggled to make their payments and fell behind.
Now, even borrowers who aren’t in the SAVE plan are struggling to make payments, with about 3.32 million borrowers delinquent on their loans and about 8.82 million borrowers in default, according to data from the Department of Education.
In addition, once payments resume for SAVE borrowers, their wages may be garnished by the Department of Education if they default. Having their income reduced can make it even harder for borrowers to get back into repayment.
Austin recommends SAVE borrowers begin exploring their repayment plan options now and begin planning to make a new monthly payment. Although borrowers should be aware, Austin said, some repayment plans currently available will be phased out in 2028.
