Student Loan Repayment: What Should We Expect?

Chief Economist Eugenio J. Alemán discusses current economic conditions.

We have heard lots of commentary on the student loan repayment issues facing almost 44.5 million Americans. Some of these commentaries are correct but there are others that miss the mark. Let’s try to clarify some of these issues in order to make sense of the potential severity of the issues confronting individuals who hold student loan debt as well as its potential impact on U.S. economic activity. In general, if the economy is growing and there is full employment, as it is today, there should not be an issue with student loan debt holders being able to afford their debt payments. There may be some exceptions with predatory student loan lending by private firms, but those cases are a minority of student loans.

The Trump administration postponed student loan debt repayment at the start of the COVID-19 pandemic and the postponement has been extended eight times since. Although there were very good reasons for the original postponement as well as for several of the extensions, those reasons cannot be considered necessary today. Furthermore, efforts have continued to improve the ability of individuals to pay student loan debts after the U.S. Supreme Court concluded that the Biden administration went too far in promising to forgive student debt loans. The Biden administration has proposed some income-based alternatives for student loan repayment that will benefit some borrowers, perhaps in the lower echelons of income, but student loan repayment is scheduled to start again in October 2023.

Although there were about 44.5 million individuals with student loan debt as of Q2 2023, ‘only’ about 27.4 million were in forbearance by the second quarter of 2023 while 6.5 million were ‘cumulative in default,’ which are loans that are more than 360 days delinquent. Six million students are still in school, so they do not have to start paying yet, 1 million are in the six-months grace period after leaving school and 300,000 individuals are still repaying their loans. Furthermore, 3.1 million individuals were in ‘deferment,’ which means that their payments have been temporarily suspended or “reduced as a result of certain types of financial hardships.” Finally, there are about 200,000 individuals marked as ‘other,’ which “includes loans that are in non-defaulted bankruptcy and in a disability status.” So, ‘only’ about 27.4 million student loans are expected to resume payments in October, not 44 million as some reports have indicated.

Recipients of Federal Managed Portfolio by Loan Status