Student loan borrowers have enjoyed a three-year reprieve from their student loan payments. Hopefully, many student loan borrowers are in a better place than they were before the pandemic began. Student loan repayment will resume later this summer.

Even if the Biden Administration’s loan forgiveness program wins its appeal to the Supreme Court, 30 to 40 million student loan borrowers will still need to resume their repayments, and there’s a concern many will fall behind on their payments.

Student loan defaults are tracked through three-year cohort default rates. The Department of Education publishes CDRs based on the percentage of an institution’s borrowers who enter repayment and default before the end of the fiscal year. Schools with a default rate of 30 percent for three consecutive years or 40 percent in a single year must take action to avoid the risk of losing their Title IV eligibility.

What’s available to avoid student loan defaults?

Fresh Start

The Fresh Start program will be available to borrowers with defaulted student loans for a full year once repayment resumes. This initiative literally gives borrowers a fresh start on their repayment. Borrower’s loans are placed back into good standing and borrowers can resume taking out financial aid to complete their education.

Income-Driven Repayment

The Biden administration has proposed changes to income-driven repayment (IDR)that include more generous repayment terms to reduce monthly payments even more. Even if IDR remains the same, borrowers can still enroll in the current income-driven repayment plans for sustainable repayment.

Any borrower in default or delinquency has a path to manage their student loan repayment. Especially since IDR plans can reduce payments to as little at $0 per month.

Third-Party Servicers

Last month, the Department of Education issued a “Dear Colleague” letter updating the requirements and responsibilities of third-party servicers who contract with Title IV eligible schools. Third-Party Servicers providing Default Prevention services are required to perform default management/prevention/aversion activities such as counseling.

IonTuition qualifies as a third-party servicer under the new rules.

Will Student Loan Defaults Return when Repayment Resumes?

It’s likely some student loan borrowers will still default even with all of the guardrails currently in place. However, if schools and servicers take appropriate action to prepare borrowers for repayment the rates should remain low.

Third-Party Servicers like IonTuition have been helping schools reduce their cohort default rates for over ten years. We understand the nature of repayment and how that often conflicts with human nature.

Contact today to learn more about how ION can help your institution prepare for repayment this year.