Activists say that this is not just a temporary lapse but a "massive student debt strike" as borrowers continue to wait for the White House to implement its long-awaited student loan forgiveness program.
"Faced with the impossible choice of feeding their kids, keeping a roof over their head, or throwing an average of $400 a month into the Department of Education [DoE] incinerator, borrowers are rightly choosing to keep themselves and their families financially afloat," said Astra Taylor, co-founder of Debt Collective, a union that advocates on behalf of debtors.
Back in October when the federal government resumed student loan payments, there were 22 million borrowers with payment due. According to the latest data, just 13 million, or just over half, settled their bills, leaving the other 40 percent with failed repayment status.
One month prior in October, Credit News and others warned that resuming student loan repayments would hit many American families hard. What was not expected was that nearly half of borrowers would refuse or be unable to pay come October.
(Related: The banking industry in 2023 saw its worst year since 2008 – more than 60,000 banking jobs were cut.)
American economy swirling the drain
Prior to COVID, roughly one-quarter of student loan borrowers were behind on their payments. That figure has since ballooned to 40 percent, and is likely to increase even higher as 2024 progresses.
When student loans went into forbearance in March 2020 at the start of the "pandemic," lockdowns kept many people at home and out of work. In the years that followed, many American families got used to not having to pay that debt as they reapportioned their daily lives in accordance with the mandates.
Now that COVID is over, many of these families are struggling to keep up with what is now expected of them, not to mention the fact that inflation has skyrocketed in nearly every sector of the American economy.
"Reallocating up to $500 a month to student loan payments was always going to be difficult, but with today's record costs of living and borrowing, it's more challenging than ever," Credit News reported.
It is important to note, though, that borrowers refusing to or being unable to pay is not the only reason for what is now being described as an "October shock." It turns out lenders were unprepared for payment resumptions as well.
"Neither borrowers nor the student loan system were prepared to resume repayment," commented Persis Yu, deputy executive director at the Student Borrower Protection Center. "Servicers are overwhelmed and are failing to help struggling borrowers navigate the options that are available to them."
Carolina Rodriguez of the nonprofit Education Debt Consumer Assistance Program agrees. She commented that servicers "are having a very hard time getting people back into repayment."
Millions of borrowers are waiting on the $400 billion bailout program that President Biden promised would come. That program would erase up to $20,000 in federal debt for roughly 40 million borrowers.
The reason Biden's bailout program has not yet commenced is because the Supreme Court struck down the plan back in June, claiming the president had overstepped his authority.
Since that time, the DoE has been working with a panel of experts to negotiate a watered-down version of the forgiveness program, though no consensus has yet been reached.
The plan, according to the DoE, is to submit a new student debt relief proposal by May 2024, though there is no guarantee that it will pass, especially in an election year since forgiving student loans is a hot-button issue with conservatives standing in opposition to it.
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