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The Hill
9 hours ago
- Business
- The Hill
Congress considering borrowing limits on federal student loans
(NewsNation) — Congress is still hashing out the details of President Trump's 'big, beautiful' budget bill, but one thing seems clear: Whatever passes will have major implications for student loans. Both the House-passed version and the proposal still being debated in the Senate include several changes to the federal student loan system, an overhaul Senate Republicans say could save taxpayers at least $300 billion. A central feature of both plans: new caps limiting how much money people can borrow from the federal government to finance their education. Some say the loan limits, specifically those on graduate school and parent borrowing, are long overdue. 'Study after study has shown that colleges exploit these unlimited loans to hike tuition,' Preston Cooper, a senior fellow at the right-leaning American Enterprise Institute, wrote in a recent op-ed. But advocacy groups warn that Republicans' proposed changes will make it harder for low-income students to afford college — and push more borrowers to private lenders, whose loans generally offer fewer protections. Professional organizations like the American Medical Association have also raised concerns, saying the borrowing cap could deter qualified medical students and worsen the physician shortage. Here's what to know about the proposed caps on federal student loans. While the House and Senate proposals differ in details, both would limit how much parents can borrow through the federal Parent PLUS loan program to help pay for their children's college. Under the House plan, parents of undergraduates would be limited to borrowing $50,000 total, while the Senate plan would cap parent borrowing at $65,000 per student. Currently, there is no limit, and parents can borrow up to the full cost of attendance. Parent PLUS loans let families help pay for their children's education without saddling the student with additional debt in their name. But they often come with less favorable loan terms and have caused many parents to sacrifice their financial stability to help their children. In 2022, parents in more than 3.7 million families owed over $104 billion through the federal Parent PLUS loan program, according to the Century Foundation, a progressive think tank. By the time a student completes their program, the median Parent PLUS debt burden carried by parents who used the loan is roughly $29,600, the report found. After ten years, more than half of the original balance (55%) still remains, on average, per the Century Foundation. The legislation would cap the amount students can borrow for graduate school at a total of $100,000 for most master's programs. For professional degrees, like law or medical school, the total cap would be $150,000 under the House plan or $200,000 under the Senate's. As it stands now, those students can borrow up to the full cost of attendance through Grad PLUS loans. Cooper called the proposed maximums a 'good start' in his op-ed and said they should help rein in 'predatory' lending practices. 'Universities have used graduate loans as a cash cow to finance expensive master's degree programs of dubious value, while many schools have foisted tens of thousands of dollars in parent loans on low-income families,' he wrote. But the loan ceiling, along with other proposed changes, has also raised concerns. 'The potential impact of these student-loan changes would be to worsen a growing physician workforce shortage that is already making it difficult for people to access timely care in vast areas of the country, especially in high-demand specialties,' Dr. Bruce Scott, recent president of the American Medical Association, wrote earlier this month. According to the Association of American Medical Colleges, the median cost of attending four years of medical school for the class of 2025 is $286,454 for public institutions and $390,848 for private schools. Both totals are well above the proposed borrowing caps. Nearly 43 million borrowers collectively owe $1.7 trillion in federal student loan debt. That amount represents more than 92% of all student loan debt, meaning roughly 8% is private, according to the Education Data Initiative. Some worry that capping federal student loans will steer more borrowers to the private market, which often comes with higher costs and fewer protections. 'Students and parents will be forced to turn to expensive, high-risk private lenders — many of whom have a sordid history of exploiting borrowers,' the Century Foundation warned in a recent commentary. The article pointed out that even though private student loans only account for 8% of debt, more than 40% of student-loan-related complaints submitted to the Consumer Financial Protection Bureau are about private loans. Still, Senate Republicans argue that sweeping student loan changes — including borrowing caps — are needed to fix what many see as a broken system. 'American higher education has lost its purpose. Students are graduating with degrees that won't get them a job and insurmountable debt that they can't pay back,' U.S. Senator Bill Cassidy, R-La., said in a statement announcing the Senate plan earlier this month. President Trump is urging Congress to pass the megabill by the Fourth of July, but federal lawmakers are still debating the details.
Forbes
05-05-2025
- Business
- Forbes
Republican Education Reform Bill: Reshaping Higher Education's Future
Loan or savings for college. Graduation cap and roll of dollars. A seismic shift in federal higher education policy is on the horizon. The Republican-led House Education Committee has unveiled what many analysts call the most sweeping changes to student financial aid in decades. This ambitious overhaul introduces significant reforms affecting everything from loan caps to institutional accountability, with profound implications for students, families, colleges, and taxpayers. The bill's architects frame these reforms as necessary corrections to a broken system that has fueled both skyrocketing tuition costs and unsustainable student debt. Critics counter that many proposals threaten to pull the educational ladder up behind those who have already climbed it. Several key provisions that would dramatically restructure how Americans pay for college are at the heart of the legislation. Let's examine each major component and what it would mean for different stakeholders across the educational landscape. Perhaps the most consequential change would cap annual federal financial aid at the previous year's national median cost of attendance for specific programs. Preston Cooper, notes in Forbes that 'Study after study has shown that colleges exploit these unlimited loans to hike tuition,' suggesting this measure could finally create downward pressure on tuition. The bill would also establish lifetime borrowing limits: 50,000 for undergraduates, $100,000 for graduate programs, and $150,000 for professional degrees such as medicine and law. The House Education and the Workforce Committee states that these caps would curb excessive debt burdens. However, the American Council on Education has pushed back firmly, arguing that "limiting the availability of federal aid to the median cost of specific programs" is among several "harmful proposals" that would "reduce student aid to low-income students and would impose onerous financial penalties on institutions, particularly those least able to meet them." The organization warns this approach fails to account for regional cost variations and could disproportionately impact institutions in high-cost areas. The legislation targets several established loan programs. Grad PLUS loans and unsubsidized loans for undergraduates would be eliminated entirely. Parent PLUS loans would remain but with a new $50,000 aggregate limit. Federal student loans for part-time students would be prorated based on credit hours. These changes would substantially simplify the federal loan system and reduce government spending. The House Education Committee argues these reforms would streamline "complicated, confusing student loan programs." But simplification comes at a cost. Higher education experts have warned that "the death of Grad PLUS alone might threaten to close some colleges," according to reports from Inside Higher Ed. Graduate students would face significantly reduced borrowing options, while undergraduates would lose necessary interest subsidies during their studies. While the bill assumes market forces will drive down costs, but in the short term, it will almost certainly reduce access for those with limited family resources. The legislation would dramatically simplify repayment options, reducing them to just two plans: one with fixed monthly payments over 10-25 years and another setting payments between 1-10% of borrowers' income. While simplification could reduce confusion for borrowers navigating the current maze of repayment options, the National Association of Student Financial Aid Administrators (NASFAA) has expressed concern that the proposed income-driven repayment plans would be less generous than current options. The American Council on Education warns these changes would establish less favorable loan repayment options, leading to students paying more, borrowing more, and facing costlier repayment terms. The Pell Grant program, the cornerstone of need-based federal aid, would undergo significant changes. Students would need to work at least 15 semester hours per year to qualify, a requirement that could exclude many part-time students who are juggling work, family, or other obligations. On the positive side, eligibility would expand to students in "short-term, high-quality, workforce-aligned programs," potentially helping non-traditional students quickly gain marketable skills. The bill also allocates $10.5 billion to address the current Pell shortfall, ensuring the program's near-term stability. Perhaps the most controversial element of the legislation is its approach to institutional accountability. Schools would be required to reimburse the government for a percentage of unpaid student loans disbursed after 2027, with the percentage based on price, graduates' earnings, and completion rates. Rep. Suzanne Bonamici (D-OR) called the proposal "shortsighted," arguing it creates this perverse incentive for schools to shut down programs that prepare students for in-demand but underpaid careers like teaching or social work or public service fields and would create an incentive for schools to enroll wealthier students who are more likely to repay their loans at higher rates. The American Council on Education's analysis found that 98 percent of institutions would have a risk-sharing payment" and 75 percent of institutions would have an overall net loss, which would penalize institutions serving the largest numbers of those students who struggle most in the labor market: low income, first generation, and underrepresented student populations." The legislation would eliminate several Obama and Biden-era regulations, including the 90/10 rule requiring for-profit colleges to obtain at least 10% of revenue from non-federal sources and the gainful employment rule holding programs accountable for graduates' debt-to-income ratios. The bill would repeal the Biden administration's version of the borrower defense to repayment regulations, which makes it easier for students defrauded by their colleges to get debt relief. The Senate Republican proposal, while sharing many elements with the House version, takes a more moderate approach in several areas. According to Forbes, the Senate version maintains subsidized loan availability for undergraduates and offers different repayment structures. As this legislation moves through Congress, fundamental questions emerge about its impact on American higher education. While specific proposals address legitimate concerns about college affordability and student debt, others threaten to reduce access for disadvantaged students and create new challenges for institutions serving vulnerable populations. In a letter to Rep. Wahlberg, chair of the Education and Workforce Committee, Ted Mitchell, President of the American Council on Education, wrote on behalf of 6 other educational associations, that 'The overwhelming majority of provisions in the bill would reduce student aid to low-income students and would impose onerous financial penalties on institutions, particularly those least able to meet them.' Whether this, or Preston Cooper's view that 'If passed, the result of this policy mix will be a saner and more sustainable student loan system,' will be borne out as the final bill is enacted and the changes take place. As the debate unfolds, one certainty emerges: American higher education is on the cusp of its most significant policy transformation in decades. Whether that transformation expands opportunity or contracts it will shape economic mobility, workforce development, and social equity for years to come.
Forbes
30-04-2025
- Business
- Forbes
Republican Student Loan Plan's Inflation Trap: Repayment Assistance Plan May Make Student Loan Bills Soar
The Republican student loan plan's new option, Repayment Assistance Plan, doesn't adjust for ... More inflation; student loan payments may soar over 30 years, even without a raise House Republicans' newly proposed Repayment Assistance Plan, part of their sweeping 2025 student loan reform bill known as the Student Success and Taxpayer Savings Plan, aims to simplify federal repayment options. However, a little-noticed design flaw could make the plan much costlier over time: The Repayment Assistance Plan currently ties monthly payments to income tiers fixed in today's dollars; not adjusted for inflation. In fact, the word inflation isn't mentioned at all in the 103-page draft proposal (I reached out to Committee Chair Tim Walberg's (R-Michigan) office as well as the Republican Education & Workforce Committee office for comment and will update this page if I hear back). As a result, borrowers whose income merely keeps pace with inflation may still be pushed into higher repayment tiers over time. This would result in borrowers paying more of their income over time, causing their student loan bills to soar even though their real income never improves. Over a 30-year repayment term, inflation alone could push borrowers into higher repayment tiers. The result? Borrowers may owe significantly more on their student loans—not because they're earning more, but because RAP doesn't account for the rising cost of living. Unveiled in April 2025 by the House Education and Workforce Committee, the Republican student loan plan proposes a simplified, tiered repayment system for federal borrowers. Under the Repayment Assistance Plan, monthly payments are calculated as a share of adjusted gross income on a tiered scale using fixed income brackets: Importantly, these brackets are hard-coded into the plan and do not currently plan to adjust for inflation. The goal of the Repayment Assistance Plan is to ensure every borrower 'always sees progress' on their loans, as Preston Cooper, a senior fellow at the American Enterprise Institute, told me during an interview. The unpaid interest is forgiven if your payment doesn't fully cover the interest. And if your payment doesn't reduce your principal by at least $50, the government makes up the difference. After 360 payments (30 years), any remaining balance is forgiven. According to the Bureau of Labor Statistics, inflation in the U.S. has averaged about 4.0% per year over the last 50 years. If a borrower's wages grow in line with that inflation but don't increase in real terms, they may still be pushed into higher Repayment Assistance Plan brackets. This is called bracket creep; when inflation moves someone into a higher payment tier. RAP's fixed brackets create exactly this risk. Unlike tax thresholds or programs like SAVE or IBR, RAP's brackets are not indexed to inflation, cost of living or wage growth. While neither SAVE nor IBR is directly indexed to inflation in the traditional sense, the calculation of payments is indirectly linked to inflation through the use of federal poverty guidelines, which are updated annually to reflect changes in the cost of living. As a result, if the cost of living increases (i.e., inflation rises), the poverty guideline increases, which means more of your income is shielded from loan repayment calculations, potentially lowering your required monthly payment or keeping it from rising as quickly as your income. Because the Repayment Assistance Plan's income tiers are fixed in nominal dollars, normal inflationary wage growth can steadily nudge borrowers into higher repayment brackets over time without any real increase in earning power. In other words, a borrower could be required to pay a higher percentage of their income toward loans in the future solely because of inflation, not because they're actually earning more in today's dollars. Let's take a borrower earning $25,000 a year at the start of repayment who has no expectation of real raises. If their salary grows only with inflation, their real purchasing power stays flat, even though their nominal salary increases. Using the U.S. historical average inflation rate of roughly 4% per year, here's how that borrower's income and required payment tier would change under the Repayment Assistance Plan over the standard 30-year repayment term: Impact on a borrower's nominal income due to 4% annual inflation and assuming zero real wage growth. The borrower initially owes 2% of income, which translates to about $42 per month, but by year 10, inflation alone pushes their income into the next bracket, raising their required payment to 3%, or about $93 per month. By year 20, their income climbs to roughly $55,000 and their payment jumps to 5% (about $229 per month). By year 30, their income crosses $81,000 and the Repayment Assistance Plan assigns them an 8% payment rate, meaning monthly payments of about $540 per month. If a borrower's salary keeps up with average inflation, but doesn't rise beyond it, their nominal income will increase each year even though their real income (what their paycheck can buy) remains flat. Under a plan with inflation-indexed brackets, this wouldn't matter, their payment rate would stay proportionate to their real income. But under RAP's fixed brackets, that borrower will gradually climb into higher payment tiers over time. It's the stealth inflation tax of student loan repayment, an effect that could surprise unwary borrowers. Remember, all of this occurs without the borrower getting a real raise. Their lifestyle and purchasing power remain constant, yet their loan payment quadruples in real dollars. That's because the Repayment Assistance Plan doesn't adjust its income tiers for inflation, which means as wages rise nominally, so does the repayment burden. This inflation creep exposes borrowers to rising costs to keep up with the economy. Without a mechanism to index RAP's income tiers to inflation borrowers will find themselves paying more of their income over time, even if they're no better off in real terms. In this scenario, what starts as a modest and affordable plan gradually becomes a heavier burden, not because of poor financial decisions but because of the structural design of the plan itself. It's worth noting that a borrowers loan balance would be shrinking over this time because RAP does require payments and forgives any leftover interest each month. By the end of 30 years, our hypothetical borrower would qualify for loan forgiveness on any remaining balance, but the road to that relief becomes progressively steeper. If the borrower had a small student loan, then they might fully pay off their loan before hitting the higher RAP tiers; however, for larger balances, this likely won't be the case. Especially for these larger student loan balances, in the later years of repayment, the borrower would be allocating a much larger chunk of their paycheck to loans than they did in the beginning, effectively squeezing their budget harder as time goes on. If your income starts at $25,000 and grows with inflation alone, it would take a 4.73% average annual inflation rate to push you into the top RAP bracket ($100,000+) by year 30. That means if inflation averages just under 5% over the next three decades, a level not far from recent years, you could be required to pay 10% of your income toward loans, even if your lifestyle hasn't improved. This insight underscores how RAP's lack of inflation adjustment can dramatically increase repayment burdens. Even modest inflation can significantly increase student loan payments under the Repayment Assistance Plan. Ultimately, RAP does not adjust its income tiers for inflation, so the longer you repay, the more likely you are to creep into higher brackets not because you're earning more in absolute terms, but because your dollars are worth less. For student loan borrowers, especially those with modest incomes, this repayment structure presents a paradox: you could be penalized for simply keeping up with inflation. Other federal programs adjust for inflation. The IRS updates tax brackets annually; the Department of Health and Human Services updates poverty guidelines, which are used to calculate payments in SAVE and IBR. RAP, however, is currently slated to freeze its tiers in today's dollars, creating a situation where the repayment burden intensifies over time. Borrowers with slow wage growth or those in public service could be especially affected. What starts as a manageable payment could eventually consume a much larger share of income, all without any improvement in real earnings. From a policy perspective, failing to index the brackets could mean that over time, RAP becomes less generous and more costly for borrowers than initially advertised. The first cohorts of borrowers might find the percentages manageable, but as inflation raises incomes across the board, future cohorts (or the same borrowers later in life) would contribute higher shares of their pay. In real terms, the government would be extracting more from borrowers' budgets in later years without those borrowers being better able to afford it. In short, yes. The House Committee on Education and Workforce voted on April 29 to advance the bill. This puts the proposals on the path to approval under the budget reconciliation profess. However, the House would still need to reconcile and agree on identical provisions with the Senate before it could be signed into law. This leaves an opportunity to revise the bill and include language that would adjust the adjusted gross income tiers directly or indirectly for inflation. The bottom line is that unless the Republican student loan plan is amended for automatic inflation indexing, student loan borrowers may find that the Repayment Assistance Plan's affordability erodes each year.
Boston Globe
21-04-2025
- Business
- Boston Globe
Millions of student loan borrowers are behind on payments
Loan servicers estimate that this year about 4 million people have been reported to credit bureaus for late payments, and researchers at the Federal Reserve Bank of New York project that number will climb past 9 million by the end of June. Advertisement Those rising numbers have implications for the broader economy, which has already shown signs of slowing. Low credit scores can prevent people from renting or buying homes and push them into pricier, riskier loans for cars, emergency cash and other everyday needs. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up 'It's not a problem we want to add to the pile,' Preston Cooper, an economist and senior fellow at American Enterprise Institute, a conservative think tank, said of the student loan delinquencies. And if millions of those borrowers end up defaulting, the cost will be borne by taxpayers. Even borrowers with good credit are falling behind on their payments. More than 500,000 student loan borrowers with good to excellent ratings recently saw their scores dive by an average of 128 points -- a huge drop that can knock a borrower with a good rating down to the lowest credit tier -- because they are late on their payments, according to Credit Karma, a credit score tracking app. Advertisement 'Many of the households required to resume paying on their student loans are also struggling with credit card debt at near-record interest rates and high-rate mortgages they thought they would be able to refinance into a lower rate, but haven't,' said Mark Zandi, chief economist at Moody's Analytics. The reasons so many borrowers aren't paying are complicated, but current and former federal officials, loan servicers, borrower advocates and others involved in the complex task of restarting collections point to two primary issues. First, borrowers — as well as servicers and the Education Department, which manages the government's student loan portfolio — have been whipsawed by frequent, major changes in their loans' terms and repayment options. Nine million people have their loans in forbearance, a status that pauses collections. Most of those loans are caught in lengthy processing backlogs at the Education Department or frozen by legal challenges to SAVE, a generous repayment program introduced by former President Joe Biden that now seems certain to be struck down by federal courts or eliminated by the Trump administration. And second, after such a long pause, many people are unable to incorporate a three- or four-figure monthly bill into their household budgets. 'You've gotten people out of the habit of repaying now for the better part of five years,' said Colleen Campbell, who resigned last month as executive director of the Education Department's loan portfolio management office. 'For some borrowers, several cohorts of them, you've never built the repayment habit at all.' Advertisement Elissa Jane Mastel, 55, a marketer and teacher in Denver, saw her credit score fall more than 100 points recently because of her unpaid loans, which she said are caught in bureaucratic snarls. She sought to have some or all of her debt discharged through a program that forgives teachers' loans after several years of payments, but she has not been able to get answers from her loan servicer about why her application has not progressed. 'I'll be on hold for like four or five hours,' she said. 'And then when you get the person on the phone, they're like, 'Oh, I can't help you.'' Student loans have always been riskier than most other consumer loans: Before the pandemic, about 1 in 5 federal loan borrowers defaulted. Because the government, not banks or private lenders, is the creditor for nearly all student loans, late payments and defaults don't pose the kind of systemic financial risk that set off the mortgage crisis more than a decade ago. During the Biden administration, the Education Department offered a 'fresh start' program that moved millions of defaulted borrowers back into good standing. It paired that with a yearlong 'on ramp' for late payers, during which loan servicers were instructed to pause delinquent borrowers' loans and not report late payments. Millions of people saw their credit scores rise because of those actions, which were intended to let borrowers emerge from the pandemic with clean slates and move smoothly into repayment. But those moves also inflated the number of borrowers who appeared to be current on their debts, sweeping in millions of people who had long struggled to make payments. As many of those people now drift back into delinquency, they're joined by millions of newly delinquent borrowers. Advertisement Loan servicers say their collection data is flashing red warning signs. Nelnet, the government's largest servicer, recently circulated an analysis to lawmakers that showed a huge spike in borrowers whose loans were four to five months overdue. Right before the pandemic, less than 1% of Nelnet's accounts were at that point, at the edge of default. Now, more than 9% have reached the brink. 'Without immediate intervention, we could face the largest wave of defaults in the program's history,' Nelnet warned. Federal student loans default when they are more than 270 days overdue -- a point that people who never resumed paying after the pandemic pause will reach this fall. That's when the full picture of how many borrowers are not making payments will become glaringly clear, experts predict. 'Let's say 5 million of those people default. That's a really bad outcome for the country, economically,' Campbell said. Adding to the turmoil are the barriers confronting borrowers trying to sort through their payment options. Instead of increasing Education Department staffing to handle a work surge and clarifying the often-shifting rules of its myriad repayment programs, the government has done the opposite. Trump instructed Education Secretary Linda McMahon to shut down her agency, though that cannot be done without congressional approval. He amplified the confusion by announcing that the student loan portfolio would move to the Small Business Administration, a change that also cannot be accomplished without Congress. But Congress has shown no interest in that idea, and no serious planning was done before or after Trump's announcement, according to seven people familiar with the administration's discussions, who asked for confidentiality to speak about private talks. Advertisement Taylor Rogers, a White House spokesperson, said the administration was 'working diligently' to carry out the president's order and shift some of the Education Department's functions to other agencies. Caitlin O'Dea, communications director for the Small Business Administration, said her agency was coordinating transfer plans with the White House, Congress, the Education Department and the Treasury Department. 'As the government's largest guarantor of business loans with an existing portfolio of $444 billion, the SBA is well-prepared to apply its experience in responsible lending, risk management and loan servicing,' she said. The Education Department did not respond to requests for comment. Trump's decrees, coupled with plans to fire 46% of the Education Department's employees, hollowed out the agency's already understaffed Federal Student Aid office to the point of near collapse, according to current and former agency employees. In social media posts and discussion groups, borrowers have shared stories of hourslong waits when they try to reach their loan servicer, often only to find that customer service representatives have few answers. Borrowers enrolled in the SAVE plan are able to keep their loans paused while the legal challenges proceed, but they have no idea when they'll have to start paying again, or how much those payments will be. More than 1 million borrowers have been waiting, often for months, for the Education Department to process their applications for income-driven repayment plans. 'I'm seeing people lose their minds like I have never seen in the 20 years that I've been doing this,' said Alan Collinge, founder of Student Loan Justice, an advocacy group that hosts a Facebook forum on which thousands of borrowers share advice and rants. Advertisement Heather Lawton, 48, finished a master's degree in health administration last year and then consolidated her graduate and undergraduate loans. Lawton, who lives in Gainesville, Florida, and works as a credentialing specialist for a health care chain, applied for an income-driven payment plan. Based on the government's repayment calculator, she anticipated a monthly bill of about $490. Instead, she was enrolled in a 10-year payment plan and got a bill in January for $924. She called her servicer and, soon after, received a revised bill, but for an even higher amount: $1,014. After hours of phone calls, stretching across weeks, she still has not resolved the issue. 'This ordeal has led me to question the entire system,' she said. 'I just want to do the right thing by paying what I owe. But I also deserve a clear and correct bill.' This article originally appeared in .
New York Times
21-04-2025
- Business
- New York Times
Millions of Student Loan Borrowers Are Behind on Payments
After a five-year pause on penalizing borrowers for not making student loan payments, the federal government dropped the hammer. It instructed its loan servicers to start reporting late payers to credit bureaus at the start of the year. The result: Millions of borrowers saw their credit scores plunge in recent months, and loan servicers are warning that a record number of borrowers are at risk of defaulting by the end of the year. Only one-third of the 38 million Americans who have borrowed money to pay for college or graduate school and should be making payments actually are, according to government data. Loan servicers estimate that this year around four million people have been reported to credit bureaus for late payments, and researchers at the Federal Reserve Bank of New York project that number will climb past nine million by the end of June. Those rising numbers have implications for the broader economy, which has already shown signs of slowing. Low credit scores can prevent people from renting or buying homes and push them into pricier, riskier loans for cars, emergency cash and other everyday needs. 'It's not a problem we want to add to the pile,' Preston Cooper, an economist and senior fellow at American Enterprise Institute, a conservative think tank, said of the student loan delinquencies. And if millions of those borrowers end up defaulting, the cost will be borne by taxpayers. Even borrowers with good credit are falling behind on their payments. More than 500,000 student loan borrowers with good to excellent ratings recently saw their scores dive by an average of 128 points — a huge drop that can knock a borrower with a good rating down to the lowest credit tier — because they are late on their payments, according to Credit Karma, a credit score tracking app. 'Many of the households required to resume paying on their student loans are also struggling with credit card debt at near-record interest rates and high-rate mortgages they thought they would be able to refinance into a lower rate, but haven't,' said Mark Zandi, the chief economist at Moody's Analytics. The reasons so many borrowers aren't paying are complicated, but current and former federal officials, loan servicers, borrowers' advocates and others involved in the complex task of restarting collections point to two primary issues. First, borrowers — as well as servicers and the Education Department, which manages the government's student loan portfolio — have been whipsawed by frequent, major changes in their loans' terms and repayment options. Nine million people have their loans in forbearance, a status that pauses collections. Most of those loans are caught in lengthy processing backlogs at the Education Department or frozen by legal challenges to SAVE, a generous repayment program introduced by former President Joseph R. Biden Jr. that now seems certain to be struck down by federal courts or eliminated by the Trump administration. And second, after such a long pause, many people are unable to incorporate a three-or four-figure monthly bill into their household budgets. 'You've gotten people out of the habit of repaying now for the better part of five years,' said Colleen Campbell, who resigned last month as the executive director of the Education Department's loan portfolio management office. 'For some borrowers, several cohorts of them, you've never built the repayment habit at all.' Elissa Jane Mastel, 55, a marketer and teacher in Denver, saw her credit score fall more than 100 points recently because of her unpaid loans, which she said are caught in bureaucratic snarls. She sought to have some or all of her debt discharged through a program that forgives teachers' loans after several years of payments, but she has not been able to get answers from her loan servicer about why her application has not progressed. 'I'll be on hold for like four or five hours,' she said. 'And then when you get the person on the phone, they're like, 'oh, I can't help you.'' Student loans have always been riskier than most other consumer loans: Before the pandemic, around one in five federal loan borrowers defaulted. Because the government, not banks or private lenders, is the creditor for nearly all student loans, late payments and defaults don't pose the kind of systemic financial risk that set off the mortgage crisis more than a decade ago. During the Biden administration, the Education Department offered a 'fresh start' program that moved millions of defaulted borrowers back into good standing. It paired that with a yearlong 'on ramp' for late payers, during which loan servicers were instructed to pause delinquent borrowers' loans and not report late payments. Millions of people saw their credit scores rise because of those actions, which were intended to let borrowers emerge from the pandemic with clean slates and move smoothly into repayment. But those moves also inflated the number of borrowers who appeared to be current on their debts, sweeping in millions of people who had long struggled to make payments. As many of those people now drift back into delinquency, they're joined by millions of newly delinquent borrowers. Loan servicers say their collection data is flashing red warning signs. Nelnet, the government's largest servicer, recently circulated an analysis to lawmakers that showed a huge spike in borrowers whose loans were four to five months overdue. Right before the pandemic, less than 1 percent of Nelnet's accounts were at that point, at the edge of default. Now, more than 9 percent have reached the brink. 'Without immediate intervention, we could face the largest wave of defaults in the program's history,' Nelnet warned. Federal student loans default when they are more than 270 days overdue — a point that people who never resumed paying after the pandemic pause will reach this fall. That's when the full picture of how many borrowers are not making payments will become glaringly clear, experts predict. 'Let's say five million of those people default. That's a really bad outcome for the country, economically,' Ms. Campbell said. Adding to the turmoil are the barriers confronting borrowers trying to sort through their payment options. Instead of increasing Education Department staffing to handle a work surge and clarifying the often-shifting rules of its myriad repayment programs, the government has done the opposite. Mr. Trump instructed Education Secretary Linda McMahon to shut down her agency, though that cannot be done without congressional approval. He amplified the confusion by announcing that the student loan portfolio would move to the Small Business Administration, a change that also cannot be accomplished without Congress. But Congress has shown no interest in that idea, and no serious planning was done before or after the president's announcement, according to seven people familiar with the administration's discussions, who asked for confidentiality to speak about private talks. Taylor Rogers, a White House spokeswoman, said the administration was 'working diligently' to carry out the president's order and shift some of the Education Department's functions to other agencies. Caitlin O'Dea, the Small Business Administration's communications director, said her agency was coordinating transfer plans with the White House, Congress, the Education Department and the Treasury Department. 'As the government's largest guarantor of business loans with an existing portfolio of $444 billion, the S.B.A. is well-prepared to apply its experience in responsible lending, risk management and loan servicing,' she said. The Education Department did not respond to requests for comment. The president's decrees, coupled with plans to fire 46 percent of the Education Department's employees, hollowed out the agency's already understaffed Federal Student Aid office to the point of near collapse, according to current and former agency employees. In social media posts and discussion groups, borrowers have shared stories of hourslong waits when they try to reach their loan servicer, often only to find that customer service representatives have few answers. Borrowers enrolled in the SAVE plan are able to keep their loans paused while the legal challenges proceed, but they have no idea when they'll have to start paying again, or how much those payments will be. More than one million borrowers have been waiting, often for months, for the Education Department to process their applications for income-driven repayment plans. 'I'm seeing people lose their minds like I have never seen in the 20 years that I've been doing this,' said Alan Collinge, the founder of Student Loan Justice, an advocacy group that hosts a Facebook forum on which thousands of borrowers share advice and rants. Heather Lawton, 48, finished a master's degree in health administration last year and then consolidated her graduate and undergraduate loans. Ms. Lawton, who lives in Gainesville, Fla., and works as a credentialing specialist for a health-care chain, applied for an income-driven payment plan. Based on the government's repayment calculator, she anticipated a monthly bill of around $490. Instead, she was enrolled in a 10-year payment plan and got a bill in January for $924. She called her servicer, and soon after received a revised bill, but for an even higher amount: $1,014. After hours of phone calls, stretching across weeks, she still has not resolved the issue. 'This ordeal has led me to question the entire system,' she said. 'I just want to do the right thing by paying what I owe. But I also deserve a clear and correct bill.'
