A pair of national consumer advocacy groups are calling on the federal government to cancel student loan debts “across-the-board” as a means of helping individuals improve their financial futures, after analyzing more than 400,000 loans being serviced by Navient. The analysis looked at individuals who are in income-driven repayment plans and voluntarily have made payments during the COVID-19 pandemic, revealing that 63% of those individuals owe more than what was originally borrowed.
The National Consumer Law Center and the Center for Responsible Lending published a policy brief yesterday, with the results of their analysis, which looked at $27.6 billion of student loans. More than two-thirds of the borrowers in that group owe between 100% and 125% of the original balance, 26% owe between 125% and 150% of the original balance, and 6% owe more than 150% of the original balance. The individuals in this group made $600 million worth of voluntary payments during the pandemic.
“As this data shows, it is unfortunately all too common for student loan borrowers to see their balances go up instead of down while in repayment,” said National Consumer Law Center Attorney Abby Shafroth, in a statement. “Balances go up when borrowers in financial distress cannot afford to make payments. They also go up when monthly payments in income-driven repayment plans are insufficient to cover interest, which is common for low-income borrowers, meaning that despite faithfully making payments their balance goes up instead of down. And unpaid interest is often capitalized, so borrowers pay interest on interest. Ballooning balances not only make education more expensive for those who must borrow but make many feel hopeless that they’ll ever be free of their student debt. The Biden Administration can and should end the practices that cause debt to balloon going forward and provide relief to borrowers already harmed through debt cancellation.”
The report made three recommendations: canceling student loan debt and “clearing the books of bad debt,” make changes to income-driven repayment plans that are causing balances to “balloon,” and make more data available “to better understand the scope of the problem and to assess potential responses.”
