An Update on the First Months of the Return to Repayment – ED.gov Blog

By: Dr. Jordan Matsudaira and U.S. Undersecretary of Education James Kvaal

Highlights

As the Department of Education works to smoothly transition borrowers back into repayment, we highlight the following:

• More borrowers made payments on their loans in January and February of this year than in any previous month since these data started being collected in 2018
• The share of the federal portfolio making payments returned to approximately the same level as in January prior to the pandemic
• The average payment among borrowers making non-zero payments has nearly returned to its pre-pandemic level —an indication that similar types of borrowers (reflected in their monthly payment amounts) are making payments now relative to prior to the payment pause

In October 2023, as required by Congress, most federal student loan borrowers saw their payments come due for the first time in 43 months. Returning this many borrowers to repayment at one time is a daunting challenge. Between October and November, over 28 million borrowers entered repayment – more than seven times the number of borrowers who typically enter repayment in a full year. These borrowers also faced several challenges in returning to repayment after over three years pause. Many borrowers who left school during the payment pause were negotiating payment for the first time, and many millions more had been out of the habit of paying their loans for three and a half tumultuous years as the nation weathered the COVID-19 pandemic. Moreover, millions of borrowers had their student loan accounts transferred to new servicers during the pause, and many were still becoming familiar with their new servicers.

Despite these challenges, millions of borrowers have successfully started making payments on their loans since October. When the millions of borrowers making $0 payments under the Biden-Harris Administration’s SAVE program are included, more borrowers made payments on their loans in January and February of this year than in any previous month since the Department started collecting such data directly in 2018. Additionally, by the end of December 2023, nearly 15.9 million borrowers were reported “current” on their student loan payments by their servicers – just 2.5 percent fewer than the 16.3 million borrowers that were current in December of 2019, prior to the student loan pause.  We provide further context to these statistics and how they’ve changed from prior to the pandemic below.

There are no exact historical comparisons available by which to judge this progress. One point of reference, however, is how borrowers have fared after recent natural disaster forbearances, where borrowers are also automatically placed into forbearances for extended periods of time (albeit much shorter than three years). Following such forbearances—typically lasting three to six months following disruptive events like a hurricane or other natural disasters—roughly a third of borrowers missed their payments in the first months after payments resumed, and their rates of payment recovered gradually over a two- to three-year period.

In recognition of these challenges, the Biden-Harris Administration created an on-ramp to repayment whereby payments are due and interest accrues, but the negative consequences of missed payments like credit reporting and involuntary collections are suspended for 12 months. The early progress over the first five months after the payment pause ended is encouraging, and the Administration is continuing to provide support to borrowers to help them successfully manage repayment on their student loans.

However, returning to how things were is not our goal. Rather, we hope to ensure that borrowers who are eligible for loan forgiveness receive it, other borrowers can afford their payments, and borrowers avoid default and the adverse credit consequences that follow. We show below that these efforts are also bearing fruit, with record numbers of new borrowers enrolling in our new Saving on a Valuable Education or “SAVE” repayment plan—the most affordable repayment plan ever.

Recent Trends in Borrower Repayment Outcomes

A key indicator historically used by the Department to monitor repayment success is the share of borrowers that are current on their loans relative to the population of borrowers that are in “active repayment.” These rates exclude borrowers who are still in-school or in the grace period after they leave and borrowers who have defaulted on their loans, since those borrowers do not have scheduled payments due to servicers. Similarly, borrowers who are in forbearance or deferment statuses are also excluded. Focusing on repayment behavior only for borrowers in active repayment helps focus attention on borrowers who have a payment due. 

As shown in the Table below, by the end of December of last year the share of borrowers that were current on their student loan accounts was 64 percent (i.e., the ratio of the number of borrowers current in row A to the number of borrowers in active repayment in row B), down from 78 percent in December 2019. A closer look at the data in the Table, however, helps to illustrate how comparing this rate before and after the pandemic might give a misleadingly negative impression of the progress made in the first three months of repayment.

In particular, the decline in the share of borrowers who are current on their loans is driven more by the large increase in the number of borrowers classified as being in active repayment, rather than by the (modest) decline in the number of borrowers current on their loans. Row B of the table shows the number in active repayment was 19 percent higher in 2023 relative to 2019, even though the number of borrowers in the federally managed student loan portfolio grew only by 6 percent over the same time period.

There are several reasons for the large increase in the number of borrowers in active repayment, but the most important factor is that the payment pause kept millions of borrowers in active repayment by preventing them from defaulting on their student loans. Prior to the pause, over 1 million borrowers were defaulting on their student loans each year. In the month prior to the pause, about 3.3 million borrowers were over a month late on their student loan payments, with nearly 100,000 borrowers less than 30 days away from defaulting and being transferred to collections. Due to the payment pause, these borrowers were prevented from sliding into default. They began October 2023 in active repayment, rather than in default, and therefore they are included in the calculation of the share of borrowers who are current. Since the passage of time may not have alleviated the issues causing difficulty in making payments for many of these borrowers, their inclusion lowers the share of those in active repayment who are current on their student loan payments.  

One way to avoid the bias of this compositional change is to focus on the share of all borrowers in the federal portfolio (excepting those that are in school or in grace) that are current. That comparison (row A divided by row D) suggests that about 42 percent of all borrowers in the federal portfolio were current on their federal loans in December 2023, whereas about 48 percent were current in December 2019.

Other compositional changes in the portfolio among borrowers in repayment also affect the comparison of performance before and after the payment pause. Most notably, there has been a very pronounced increase in the number of borrowers who have never been in repayment before: approximately 7 million borrowers have loans that entered repayment during the payment pause. Historically, borrowers new to repayment tend to have much lower payment rates in their first year or so in repayment.

A variety of other special circumstances have also led the composition of borrowers in active repayment to have more borrowers who may be less likely to repay than prior to the pandemic’s start. These include borrowers who had previously been in default or would have otherwise defaulted if not for the payment pause, and borrowers who had their accounts transferred to a different servicer.   

In January, the number of borrowers current in repayment increased substantially to over 17.7 million. This was primarily due to a large number of borrowers successfully starting to make payments who had temporarily been put into forbearances to shield them from servicer errors in the first couple of months of repayment. Starting at the end of January, however, the “on-ramp” initiative to support borrowers began, which automatically resets loan statuses that are more than 90 days past-due to current to avoid adverse credit reporting consequences while borrowers make the transition back to repayment. As a result, using changes in borrowers’ current status with servicers to gauge progress in returning to repayment is more complicated in the most recent months.

To track more recent trends, we can instead use a closely related set of metrics on the number of borrowers with federal loans making payments (including zero-dollar payments under income driven repayment plans) and the amount of those payments. The Figure below shows the trend in these data from when they were first collected in late 2018 through February of 2024, the most recent month available.

The Figure shows the number of borrowers making payments, including zero-dollar IDR payments, on their federal student loans over the last six years, shown with the solid orange line. As of January 2024, the share of the federal portfolio making payments returned to approximately the same level as in January prior to the pandemic. In the year prior to the pandemic in 2019, an average of 14.4 million borrowers made payments each month on their federal loans, and the pre-pandemic peak was 15.04 million in January of 2020. This plummeted during the pandemic, and by the summer of 2023 just over 1 million borrowers were making payments each month. As shown in the Figure, however, between 13.5 and 13.9 million borrowers made payments in each of the first three months after payments restarted in October of 2023– close to the pre-pandemic average of 14.4 million. In January of 2024 a record 16.04 million borrowers made payments—more than in any previous month since the Department began tracking data. In other words, by January 2024, roughly the same share of borrowers in the federal portfolio were making payments as prior to the pandemic. 

Figure 1: Number of Federal Student Loan Borrowers Making Payments (including $0 payments) and Average Monthly Payments

Due largely to the Department’s new SAVE income driven repayment plan, many more of the borrowers making payments were making zero-dollar payments in 2024 relative to prior to the pandemic. As a result, as shown in the blue solid line, the average payments being made by borrowers was lower than the average level in 2019, with the average borrower making payments paying about $299 last month, relative to an average of $348 in 2019.  This too shows a recovery of sorts: during the pandemic, average payments among borrowers paying were nearly double the pre-pandemic average, since primarily relatively affluent borrowers with high payments were making payments. The fact that the average payment among borrowers making non-zero payments has returned to roughly its pre-pandemic level is an indication that similar types of borrowers are making payments now relative to prior to the payment pause.

Administration Efforts to Assist Borrowers

The Biden-Harris Administration has taken historic steps to fix a broken student loan system, forgive the loans of borrowers who have earned relief and make student loan payments more affordable than ever before. It has taken more than 25 executive actions to forgiven loans for nearly 4 million borrowers. Its efforts have helped 871,000 public servants receive the loan forgiveness they have earned. We remedied past errors in counting payments and loan servicers’ actions to steer borrowers in loan forbearances and delivered loan forgiveness to borrowers who had made payments for 25 years or longer, have permanent disabilities, or were cheated by for-profit colleges. And, in the wake of the Supreme Court decision on the President’s plan to provide up to $20,000 in debt relief to low- and middle-income borrowers, the Administration continues its work to pursue an alternative path to debt relief through negotiated rulemaking under the Higher Education Act.

The Biden Administration created the SAVE Plan, which for low-balance borrowers provides an earlier pathway to forgiveness. SAVE is the most affordable repayment plan for low- and middle-income borrowers. For borrowers earning less than about $15 per hour, or more if they have families to support, they will have $0 payments on their loans. Borrowers who still owe a payment are saving roughly $102 per month, or $1,244 per year. The SAVE Plan has also eliminated runaway interest that caused balances to grow even when borrowers were making payments. Starting in July, undergraduate payments will be cut in half.

We estimate that under the SAVE Plan, 85 percent of future community college borrowers will be debt free within 10 years.  Additionally, future borrowers can opt in to becoming automatically enrolled in the SAVE plan if they become delinquent, which could prevent millions of loan defaults over time.

The Administration secured the largest increase to Pell Grants in a decade and is leading a national movement to eliminate tuition at community colleges. It has also finalized new rules to protect borrowers from career programs that leave graduates with unaffordable debts or insufficient earnings.

The Biden Administration will never stop fighting to fix the broken student loan system, provide relief to borrowers who need it most, and make payments manageable. Through the data released today, we have seen that borrowers continue to make payments and others are utilizing the protections available to them during the transition.