AILSA CHANG, HOST:
New data out today sheds fresh light on a growing crisis in the student loan system. About a million borrowers defaulted on their federal student loans late last year, while many more miss their monthly payments and are sliding towards the same fate. And that is a problem because borrowers in default can see their credit take a huge hit and have their wages and Social Security benefits seized. NPR education correspondent Cory Turner joins us now. Hi Cory.
CORY TURNER, BYLINE: Hey, Ailsa.
CHANG: Hey. OK. So walk us through this new data. Like, what are the big takeaways here?
TURNER: Well, it's from the Federal Reserve Bank of New York, and it is the first real look we have at borrowers through the end of 2025.
CHANG: OK.
TURNER: And a few things stood out. First, as you said, about a million borrowers defaulted on their loans towards the end of the year, meaning they missed at least nine months of payments.
CHANG: Yeah.
TURNER: And that is a big deal because with the long pandemic payment pause, it hasn't even been possible, Ailsa, to really default, for several years. It wasn't actually until this past summer, around June, that we started seeing the first small group of borrowers technically default. And researchers behind today's report say they expect that number to now get bigger in the coming weeks and months.
CHANG: Wait. Is this a new trend, or could it just be - I don't know - the system correcting itself, returning to pre-pandemic levels?
TURNER: I mean, that is the question that lots of student loan folks are asking right now. And the consensus that I'm hearing is whatever it is, it's bad, and it's getting worse. The way I like to think about this, Ailsa, is as an escalator that goes down towards default. And you get on the escalator by missing a payment, right? So the pandemic stopped the escalator. It only started moving again about a year ago. And really, the most complete picture we have of this escalator comes from the Education Department. Their data only goes up to October, but the numbers were already alarming even then. So at the top and the middle of the escalator, imagine about 3.3 million people.
CHANG: Crowded escalator.
TURNER: Crowded escalator. Well, imagine the bottom - right down to the bottom, at the last step, another 3.6 million people literally on the verge, the last step of default. And then you got to keep in mind, there were already 5 million Americans at the bottom in default.
CHANG: Yeah. Help me understand that because you said the pandemic paused defaults. How could there be 5 million people already in default at this point?
TURNER: Well, because these folks were actually in default before the pandemic even started, and they have just been sitting there for years, and only now the escalator is finally moving again. And they are about to get a lot more company. So when you add all those folks up, Ailsa, there are 12 million borrowers either on the escalator or already in default, and that is more than a quarter of all Americans who have a federal student loan.
CHANG: Wow. We're going to have to get a lot more escalators. So is the Education Department doing anything about this?
TURNER: Yeah. So not long ago, the department actually reversed itself. It said it would not start seizing the wages of workers in default, which is something it's allowed to do and has been done before. And part of the reason is that we know one of the most powerful tools out there to help borrowers out of default is what's called IDR, income-driven repayment. And these repayment plans make sure borrowers aren't expected to pay more each month than they can afford. Now, Republicans successfully blocked President Biden's big IDR plan, but they are rolling out their own this summer. And it seems like the department decided really to wait until then, once that plan is out, to really pressure these borrowers back into repayment.
CHANG: That is NPR's Cory Turner. Thank you so much, Cory.
TURNER: You're welcome, Ailsa. Transcript provided by NPR, Copyright NPR.
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