It’s now been almost two months since student loan repayments restarted after being in forbearance for nearly three years due to the COVID-19 pandemic.
Now, data from the U.S. Department of Education shows that the federal student loan system is struggling, with nearly 7 million borrowers being in default.
A loan goes into default after 270 days without a payment being made.
According to the department, the number of borrowers in default has more than doubled in the past decade alone, highlighting the growing student loan crisis.
To assist those in default, the Biden administration has launched a new plan called Fresh Start, offering a helping hand to those who may be struggling.
The goal of Fresh Start is to help borrowers in default return to good standing, offering them benefits they may not have had previously.
“Fresh Start automatically gives you some benefits, such as restoring access to federal student aid (loans and grants),” StudentAid.gov says.
After applying for Fresh Start, borrowers, if accepted, will have their defaulted loans transferred to a loan servicer, reclassified as “in payment,” and their record of default wiped from their credit report.
The plan will affect millions of borrowers in default, including more than half that have less than $10,000 in student debt, according to a report from the Institute for College Access & Success.
The report highlights that almost half of those in default attended college but didn’t earn their degree, meaning they never saw the bump in earnings that usually helps pay back loans.
According to The Pew Charitable Trusts, the issue affects demographics differently, with Black borrowers being most affected (50%), followed by Hispanic borrowers (40%), and White borrowers (29%).
But now, with Fresh Start, the Biden administration is extending the pandemic-driven pause on collections on defaulted loans until at least September 2024. Fresh Start will also see wages and tax refunds go ungarnished and Social Security payments delivered.
For more information, visit the Department of Education’s student loan website here.