FOIA data reveals tons of “submarine borrowers” before repayment cliff
Federal data shows that despite the interest-free payment break allowing borrowers to find some breathing room during the pandemic, two-thirds of the nearly 430,000 student loan borrowers were still “underwater” – meaning that ‘they still haven’t been able to breach their original balance.
the The data, obtained from the Department of Education (ED) by the Center for Responsible Lending and the National Consumer Law Center (NCLC) via an Access to Information Request (FOIA) and provided to Yahoo Finance, specifically reviewed the data borrowers with federally guaranteed debt served by Navient who had decided to make at least one payment during this break.
“There’s been a lot of talk about student debt, and assuming the problem is just that college is too expensive,” NCLC lawyer Abby Shafroth told Yahoo Finance.
And while “this is certainly a problem,” she added, “this data shows that while borrowers are repaying, even if they are making payments, they are carrying a debt burden that exceeds the initial cost. from college. They end up underwater. “
Leaving borrowers stuck on interest attack for years without making a single dent in their principal loan, Shafroth pointed out, is “both the department’s interest accumulation and capitalization policies and the likely service problems.”
Federal actions amid the pandemic will lead to an estimated $ 100 billion in total student loan cancellations between March 2020 and September 2021, according to data and analysis from the Department of Education (ED) and analysis from experts, providing a financial lifeline to the approximately 45 million student loan borrowers who owe more than $ 1.7 trillion in outstanding federally guaranteed debt. The break is expected to end after January 2022.
‘They pay interest on interest ‘
The new data revealed that 428,268 borrowers who owed nearly $ 28 billion in federally guaranteed student loans were being repaid by Navient at the time, although exact data on when the data was pulled is not known. not clear. Either way, this would represent about 1% of the total number of federal loan borrowers.
Of this representative sample, 63% were underwater.
“By submarine, we meant that borrowers more [in debt] now that they didn’t borrow originally, even though these are borrowers who, even during the break in payments, were making at least some payments, ”Shafroth explained.
The “interest balance” on these loans was about $ 1.7 billion, and about 90,000 borrowers in this group served by Navient owe more than 125% of their original balance.
Especially when a borrower abstains or defers payment on a loan, the unpaid interest accumulates on the principal balance – or capitalizes – pushing it further underwater.
“For borrowers who have been in financial difficulty and who agree to forbearances or certain types of deferrals, many of them bear interest,” Shafroth said.
So, when they come out of distress, are ready to repay their debt, “all that unpaid interest from the forbearance period capitalizes on their principal balance,” Shafroth said. “They pay interest on interest.”
In addition, there have been instances in the past where service officers have referred borrowers to forbearance plans.
“Our battle cry remains’ support them, support them, make them give up the ball,” “a Navient executive said in a statement. memo 2010. “Put another way, we are very liberal with the use of forbearance once it is determined that a borrower cannot pay cash or use other entitlement programs.”
While arguing for a blanket annulment, prominent Democrats are also calling on the ED to undertake major reforms related to the functioning of federal loan officers.
Massachusetts Senator Elizabeth Warren (D), who has spoken out on both issues, is also said to have made several commitments from ED this week.
Politics reported Warren, by delaying confirmation from a senior ED official, had the department working on how it works with loan officers and debt collectors, how it plans to reform debt programs. ‘debt relief and improved supervision of schools and accrediting agencies.
A source close to the ED-Warren deal also said the agency will “make changes” to how it goes after debtors in bankruptcy proceedings, Politico added, and how it would deal with borrowers in default.