Student-loan borrowers keep getting more signals of a rocky repayment road ahead

• Student-loan borrowers are waiting for answers on the fate of repayments and debt relief programs.
• A GAO report found less than half of borrowers with monthly bills greater than $0 are current as of January.
• Legal challenges and the end of the on-ramp period could change the repayment landscape once again.

The past year has been filled with uncertainty for student-loan borrowers, and that's unlikely to change anytime soon.

As millions of federal borrowers emerged from the pandemic, President Joe Biden's administration installed a range of measures — some temporary and some intended to be permanent — to ease the repayment process.

Starting with the over-three-year pause on student-loan payments that ended last fall and continuing with various debt relief efforts, millions of borrowers have made progress or received loan forgiveness. But that doesn't mean borrowers have been left without any financial challenges.

According to a recent report from the Government Accountability Office, 40% of borrowers with scheduled payments greater than $0 were current on their payments as of January 31, 2024, and 29% were past-due. Other borrowers were either in forbearance or deferment or were current on their $0 payments.

The high delinquency rates could be due to borrowers taking advantage of the Education Department's on-ramp period ending in October, during which missed payments will not be reported to credit agencies.

Jason Delisle, a senior fellow at the nonprofit thinktank Urban Institute, told Business Insider that many delinquent borrowers could be taking advantage of the on-ramp, along with holding out for some form of debt relief.

"There's also a chance that you'll have your loans forgiven, which the Biden administration has very much so kept front and center for folks," Delisle said. "Even if it's not going to happen, they've definitely led people to believe that it probably is."

The Supreme Court struck down Biden's first attempt at broad student-loan forgiveness, and the Education Department is crafting a new plan under a different law, set to go into effect this fall. However, legal challenges will likely hit that effort, and with borrowers already facing lawsuits on other targeted relief efforts — and some temporary relief set to end — uncertainty looms.

The relief roller coaster

Many borrowers are continuing to hold out for relief. According to a NerdWallet survey conducted in July of over 2,000 adults — more than 600 of which have student loans — 31% of borrowers slowed repayment in the hopes Biden would reduce or forgive their balances, and 23% of them stopped paying altogether for the same reason.

With the on-ramp period set to end soon, many borrowers will likely be looking for other forms of relief to avoid being reported to credit agencies should they fall behind. The Education Department plans to implement its broader relief — expected to benefit over 30 million borrowers — in October, which would come right as the on-ramp ends.

However, it's likely the plan could be halted or blocked due to legal challenges. Missouri Attorney General Andrew Bailey wrote on X on Monday that his team is "preparing a multistate lawsuit to halt" the relief once it's finalized.

Bailey led an effort to block Biden's new SAVE income-driven repayment plan, intended to lower borrowers' monthly payments and give them a shorter timeline for relief. The 8th Circuit Court of Appeals recently blocked the plan pending a final decision, and the scope of the block has concerned some advocates and the Education Department for preventing forgiveness through other unrelated programs, like Public Service Loan Forgiveness.

For example, the court order could appear to mean that a borrower enrolled in SAVE is prohibited from receiving forgiveness through any other program, even if it's not being challenged. The department asked the 8th Circuit to clarify the ruling, and the court refused in an August 19 order — adding to the uncertainty looming for borrowers unsure of what their payments will look like in the months to come.

Borrowers on SAVE are currently on forbearance, with interest paused, but they are not getting credit toward loan forgiveness on repayment plans during this time. They're also awaiting Biden's broader relief plan to be finalized.

"What's going to happen with the SAVE plan is big. What will the next administration do, if anything, in response, to create another plan that might be able to clear the legal hurdles?" Delisle said. "And then the Biden administration's next mass loan forgiveness plan, the one that hasn't been finalized yet, will be looking to see if that plan can also pass legal muster."