Student Loan Default System Needs Significant Reform

Overview

As of December 2021, about 43 million Americans held federal student loans, and about 20% of those borrowers were in default, meaning they have failed to make payments for at least 270 days.¹ Although borrowers are considered to be in default after they have failed to make payments for at least 270 days, they typically do not experience the full consequences of default until after they are around 425 days past due. Consequences of default can be severe and include wage garnishment, money being withheld from Social Security benefits, and damage to borrowers’ credit scores.

The policies surrounding student loan repayment and default are currently at an inflection point. Repayment and collections on federal student loans were paused in March 2020 in response to the COVID-19 pandemic. In late 2021, the U.S. Department of Education ended its relationship with existing private collection agencies (PCAs) previously contracted to collect on loans in default, marking the start of a significant transition for the portfolio in terms of who is responsible for engaging with borrowers. The department has also announced that borrowers with federally held loans will have a “fresh start” when repayment resumes, moving all borrowers to current status and eliminating record of default that existed prior to the onset of the repayment pause.² And most notably, the department announced in August 2022 that it would cancel $10,000 in outstanding federal student loans (and another $10,000 for borrowers who received Pell grants) for qualifying borrowers who apply. This is projected to eliminate the balances of more than 40% of borrowers,³ and because many borrowers in default have low balances, a large share could see their full balances eliminated.⁴

Regardless of these and other policy actions that may also be on the horizon, many borrowers will still have student loans to repay—and those who will default in the future will have to contend with a broken system that fails to provide them with adequate solutions to prevent negative financial outcomes beyond the initial default. This report analyzes research on this system to identify the problems that cause it to break down for borrowers and proposes reforms that support the department’s overarching goal of keeping borrowers in repayment and out of default as the government moves forward with a new default system.

Key problems include:

• Default largely affects borrowers experiencing other forms of financial insecurity, and a large number of borrowers who exit default end up defaulting again (often referred to as “redefault”). Black and Hispanic borrowers are more likely to default than White borrowers—a disparity that may arise from differences in family income and wealth, along with the effect of persistent housing and labor market discrimination.
• Borrowers experience obstacles transitioning to more affordable payments in an income-driven repayment (IDR) plan—which ties monthly payments to borrowers’ incomes and family sizes and offers loan forgiveness after 20 to 25 years of qualifying payments after exiting default. Research finds that certain pathways out of default lead to particularly worse outcomes and may lead borrowers to re-default.
• The consequences of default, including involuntary payments and collection fees, can be harmful to borrowers and counterproductive, ultimately making it harder for borrowers to financially recover and begin repayment again. When subject to forced collections mechanisms, borrowers in default are responsible for paying a higher share of their income than they would in the regular repayment system under an income-driven repayment plan.
• Borrowers in default have reported not receiving important information from PCAs, the companies that had been contacting borrowers to repay on defaulted loans.

The department should consider the following recommendations for addressing these problems:

• Eliminate the separate status of default and place borrowers in a form of long-term delinquency: With the move away from working with PCAs into what may be a more integrated approach, policymakers have an opportunity to rethink whether “default” still makes sense as a separate status. Instead of default, borrowers with loans more than 270 days delinquent could be placed in a special long-term delinquency status.
• Ensure borrowers do not pay more in collections than they would in repayment: If the department is not prepared to end default, it should work to make sure that involuntary payments are capped at the amount borrowers would have paid under an IDR plan, including $0 payments for those with very low incomes, and that borrowers are only responsible for past-due amounts instead of the entire loan balance.
• Make it easier for borrowers to exit default and re-enter repayment: Under new methods for exiting default, borrowers could, for example, cure their loan by paying their past-due amounts or by enrolling in an IDR plan and making their first payment. If existing options for exiting default are retained, their one-time limit on utilizing these solutions should be eliminated to ensure that borrowers in default always have options for leaving default outside of forced collection.
• Improve the Department of Education and its contractors’ communication with borrowers: Any companies working to collect on loans in default should be required to provide timely, accurate, actionable, clearly branded information to borrowers about their options for resolving their default. Oversight and standardized ways for borrowers to file formal complaints should also be instituted to consistently review whether contractors are meeting such goals.

Summary of the student loan default process

A federal student loan is considered “past due” (or “delinquent”) the day after a borrower misses their payment.⁵ When borrowers are 90 days past due, their delinquency is reported to the major credit bureaus.⁶ According to the Higher Education Act, borrowers are considered to be in default if they fail to make their scheduled student loan payments for 270 days.⁷ In practice, however, most borrowers do not experience the full consequences of default until after they are around 425 days past due.⁸ In between those deadlines, the borrower’s defaulted loan is transferred from their loan servicer, which is responsible for collecting loan payments and helping borrowers to choose an appropriate repayment option, to the U.S. Department of Education.⁹ Borrowers can avoid the most severe consequences of default by bringing their loan current or making repayment arrangements before their loan is 425 days past due.¹⁰

Defaulted borrowers who don’t meet this deadline have their accounts assigned by the department to collection companies.¹¹ Until recently, the department relied on PCAs to locate borrowers with defaulted loans, contact them, and collect on the defaulted debt.¹² In November 2021, the department announced that PCAs will no longer service defaulted loans that are held by the department and that those loans would be transitioned to other contractors that will engage borrowers once the current pause on repayment—which has been suspended since spring 2020, as part of COVID-19 emergency relief—concludes.¹³

While in default, borrowers are subject to several consequences that can occur at the same time. In addition to their entire outstanding balance coming due through a process known as “acceleration,” borrowers may also face decreases to their credit score. Also, through the Treasury Offset Program, the Department of Education can direct the Department of the Treasury to withhold money (“offsets”) from the borrower’s federal or state income tax refunds, Social Security disability and retirement benefits, and certain other federal payments to be applied toward the repayment of a defaulted student loan.¹⁴ The simultaneous occurrence of these penalties may further heighten the impact on borrowers’ financial security. Borrowers are also subject to collection fees that can increase their balance. See Appendix A, Consequences of Default, for more information on the mechanics behind default consequences.

Characteristics of borrowers in default

To best understand how borrowers are affected by the processes around default and the options for exiting default, it is helpful to identify the characteristics of those who have experienced it.

Income and Financial Security

Studies show that borrowers in default typically have low incomes and other financial strains. Limited data is available on borrower incomes during repayment, but research has found that a majority of borrowers who try to exit default through rehabilitation—a process through which borrowers cure their default by making nine on-time payments within 10 consecutive months—qualified for the minimum $5 monthly payment.¹⁵ For example, of the borrowers who completed rehabilitation during fiscal year 2017, 79% had a required monthly payment of $5 based on their income and household expenses—the lowest allowed in the program.¹⁶ This suggests that many defaulted borrowers have a combination of low incomes, high expenses, or both.

Analyses of credit bureau data have found that defaulted borrowers have other indications of financial insecurity. For example, one study found that borrowers in default were almost three times as likely to have declared bankruptcy as borrowers who are current on their student loans (11% compared with 4%).¹⁷ Borrowers in default are also more likely to have utilities or medical debt in collections than nondefaulters and more likely to have a credit card in collections or in major delinquency (at least 180 days past due).¹⁸ Borrowers in default also tend to have lower credit scores, even in the year before entering repayment.¹⁹

Race and Ethnicity

Research finds that a disproportionately high percentage of student loan borrowers in default are Black and Hispanic, which is representative of long-standing structural inequities throughout the higher education system and American society.²⁰ A separate analysis found that 21%of Black bachelor’s degree graduates experienced default compared with just 4% of their White counterparts and were even more likely to default than White borrowers who did not complete their degree.²¹ Survey research has found similar relationships: A 2022 survey from New America also found high rates of default among Black (46%) and Hispanic (36%) borrowers.²²

Research has increasingly suggested that the tools created to provide repayment relief are not adequately addressing the financial pressures faced by Black borrowers. More than one-fifth of Black borrowers enrolled in an income-driven repayment plan reported not being able to afford food, rent, or health care.²³ Furthermore, research finds that because Black borrowers have fewer family resources to draw from to pay for higher education, the group tends to borrow more while enrolled in school.²⁴ These higher loan amounts make it easier for balances to grow while borrowers are in repayment.²⁵ Other factors—including Black workers historically being paid less than their White peers—also contribute to the repayment struggles experienced by Black borrowers once they enter the repayment system.²⁶

Institution Type

Research has also found that defaulted borrowers are more likely than other borrowers to have attended a private for-profit college.²⁷ One analysis found that defaulted borrowers are over 2 1/2 times as likely to have attended a for-profit college than nondefaulters (45% vs. 17%).²⁸ It is important to note that although community college borrowers also experience high rates of default, they are less likely to borrow loans than students attending for-profit institutions, and average amounts borrowed also tend to be lower.²⁹

Family Support Factors

Borrowers who default tend to borrow less than nondefaulted borrowers, which may be related to noncompletion. Studies have found that many defaulted borrowers took out less in student loans and are more likely to carry small loan balances than other borrowers.³⁰ Research has found that a majority of defaulted borrowers owe less than $10,000.³¹ However, accrued interest and other fees can increase borrowers’ loan balances during repayment and after default. For example, an analysis of credit bureau data found that the median student loan balance owed among borrowers in default, including fines, capitalized interest, and other penalties, is slightly higher than the balance of borrowers who are current on their payments.³² Defaults on small balances may be related to borrowers who took out loans for programs that were never completed, as they were enrolled for fewer semesters than students who completed their degrees. Studies have found that a large share of defaulters did not complete a credential, which often reduces their earnings potential.³³

Many defaulters were found to have low family incomes while in college.³⁴ For example, one analysis found that almost two-thirds (65%) of borrowers who default within 12 years of starting school entered school with incomes beneath the federal poverty level.³⁵ Defaulters are also less likely than other borrowers to have parents who attended or completed college.³⁶

Age

Studies suggest that older borrowers are also more likely to experience default than their younger counterparts. Older borrowers could be borrowing for their own education or taking on loans to support their children’s pursuit of higher education through the Parent PLUS loan program. Past analysis has found that older student loan borrowers may be especially susceptible to the financial harms caused by default, as they are at risk of having their Social Security benefit targeted in collections.³⁷

Borrowers’ outcomes after default

Many borrowers see their loan balances grow after default, though there is a great deal of variation.⁶¹ For example, looking at defaulted borrowers who were experiencing Social Security offsets, the Government Accountability Office (GAO) found that 40% of those borrowers saw their balances grow, while the remaining 60% decreased their loan balances.⁶² The loan balances of borrowers in default can increase because of accrued interest and capitalization, collection fees, and behavior after exiting default (e.g., re-borrowing, failing to make payments after exiting default, and using tools such as income-driven repayment, deferment, or forbearance). There are mixed findings on the overall trend of balance changes after default. One analysis found that the median defaulter has paid down 3% of his or her balances five years after defaulting,⁶³ while another study found that median balances for defaulters tend to either stay the same or grow slightly larger.⁶⁴

Borrowers’ pathways out of default have been found to vary by race and school type attended. One analysis found that White and Black borrowers exit default at similar rates, while Hispanic borrowers in default are slightly more likely to resolve their defaults.⁶⁵ Compared with White borrowers in default, Black borrowers in default are more likely to exit default through consolidation. Compared with Black borrowers in default, White borrowers are more likely to rehabilitate or pay off their loans in full. That analysis also found that defaulters who attended private nonprofit or for-profit institutions were more likely to resolve their defaults than their counterparts at public institutions and were more likely to resolve defaults using consolidation.

Though many borrowers are able to exit default and return their loans to good standing, a large share ends up defaulting again in the future. Analyses of longitudinal data on first-time undergraduates have found that most borrowers resolve their defaults.⁶⁶ The share of borrowers exiting default by fully paying off their loans or bringing their loans back into good standing was found to increase over time: 13% exit default within one year, 52% exit within three years, and 70% exit within five years.⁶⁷ However, across varying measures and data sets, researchers have consistently found that borrowers who exit default often re-default on their loans in the future. Exact estimates of re-default vary, based on the time period and borrowers measured. An analysis of longitudinal data found that 41% of borrowers who rehabilitate or consolidate out of default end up defaulting again within five years.⁶⁸ Earlier projections of re-default rates among borrowers with loans from the Federal Family Education Loan (FFEL) program ranged from 45% to 75%.⁶⁹

A large share of the borrowers who exit default do so by either fully paying off or rehabilitating their loans. A smaller share consolidates out of default or gets their loans discharged. Looking at how borrowers first exit default, one analysis found that 41% of borrowers exit default via full payoff of their loan balances; 39% via rehabilitation; 16% via consolidation; and 4% via loan discharge.⁷⁰ The large share of borrowers fully paying off their defaulted loans may be related to the prevalence of small loan balances among defaulted borrowers. In fact, borrowers with smaller loan balances were more likely to exit default within five years than those with larger loan balances. Although the data does not identify how payments are made, the researchers note that the large number of rapid payoffs is consistent with the use of forced collections via wage garnishment and tax refund offsets. Another analysis found similar trends for borrowers’ methods of resolving their most recent defaults.⁷¹

Problems with the default process

Problem #1: A large number of borrowers end up re-defaulting

As discussed above, researchers have found that a large share of borrowers who exit default end up re-defaulting in the future. Estimates of re-default range from 41% to 75% of defaulters, depending on the time period and borrowers measured.⁷² Studies have found that a large share of defaulters miss payments after exiting default. For example, the Consumer Financial Protection Bureau (CFPB) found that a large majority (more than 75%) of borrowers who defaulted for a second time did not successfully make a single student loan payment after exiting default.⁷³

Research shows that borrowers who exit default via rehabilitation are especially likely to default again.⁷⁴ The CFPB’s data showed that 30% of borrowers who exit default through rehabilitation default for a second time within 24 months, while nearly all borrowers (95%) who used consolidation to exit default were still in current repayment status 12 months later. Similarly, an analysis looking at borrowers entering default found that nearly 1 in 10 borrowers had defaulted on a loan that had been previously rehabilitated.⁷⁵ The higher re-default risk among borrowers who exit default through rehabilitation, relative to those who exit default through consolidation, may be because of the fact that borrowers can enroll in income-driven repayment plans more quickly via consolidation than after completing the rehabilitation process. Issues related to the transition from rehabilitation into income-driven plans are detailed later in this paper.

Problem #2: The options available for resolving defaults are complex and inflexible

The complexity of the processes to exit default—by fully paying off, rehabilitating, consolidating, or seeking a discharge of one’s loan—and the nuanced differences in benefits between those exit options can be difficult for borrowers to understand and for collection agencies or other department contractors to communicate. For example, in its pilot program on student loan debt collection, Treasury found that its staff required longer call times and post-call work times when contacting defaulted student loan borrowers, compared with other defaulted borrowers.⁷⁶

First, there are statutory limits to how borrowers can use consolidation and rehabilitation to exit default. Borrowers can only consolidate once, unless they take out more loans.⁷⁷ This means that borrowers who consolidate before defaulting cannot consolidate to exit default, because their loans have already been consolidated.⁷⁸ Likewise, borrowers have a one-time limit on rehabilitation per defaulted loan.⁷⁹ Borrowers who have already used consolidation and rehabilitation to resolve earlier defaults are only able to exit subsequent defaults on the same loans through payment in full, a compromise, or installment payments. In addition, borrowers with defaulted loans that are being collected through wage garnishment or due to a court order cannot consolidate their loans to exit default unless the wage garnishment order or judgment against them has been vacated.⁸⁰

Additionally, borrowers face specific obstacles within the rehabilitation process. Borrowers have reported problems with the processes used to calculate their rehabilitation payments, which can prevent them from successfully exiting default. For example, borrowers making income-driven rehabilitation payments have complained about communications and paperwork processing breakdowns.⁸¹

Defaulted borrowers do not have access to the IRS Data Retrieval Tool to electronically transfer income information from their taxes to their servicer for defaulted loans (formerly PCAs). Instead, borrowers are able to verbally provide estimated income information to collection agencies and submit income documentation later. In its pilot program on student loan debt collection, Treasury found that only 117 of the 604 (19%) borrowers who verbally provided estimated income information for rehabilitation payments ended up providing the required income documentation.⁸²

Sometimes the documentation submitted by those borrowers shows a different income amount than the one used to estimate their payments, meaning that the rehabilitation payment amount may be higher than initially discussed with the borrower.⁸³ In that situation, borrowers’ earlier payments were retroactively invalidated, often after several months of payments, effectively restarting the number of qualifying rehabilitation payments. Borrowers complained that collection agencies continued to automatically withdraw incorrect payments, even though those payments would not count toward rehabilitation. Some borrowers reported not discovering that their payments had not counted until after they had made all nine required payments and reached out to their collection agency.

Borrowers also encountered difficulties when using the Financial Information Statement (FIS) form to calculate their rehabilitation payment.⁸⁴ This form allows borrowers to calculate rehabilitation payments based on their income and monthly expenses, rather than just based on their income. The FIS form is also used for borrowers who do not have income, are self-employed, did not file taxes, or whose income has significantly changed since filing taxes. The FIS form requires extensive documentation of monthly expenses across 20 categories, including food, health care, and transportation.⁸⁵

After completing rehabilitation, borrowers have reported being trapped in repayment “limbo” while they are waiting for their loans to be transferred to a student loan servicer.⁸⁶ During that transfer process, which can take months, borrowers are required to continue making monthly payments to their servicer for defaulted loans (formerly PCAs). Borrowers have complained about not receiving clear communications during this time, including where they should send payments, what payment amount to send, and whom to contact with questions.⁸⁷ Additionally, some borrowers have reported that their nondefault servicers set the due date for their first payment before sending any introductory communication.⁸⁸

The onerous structure of rehabilitation is largely a legacy of how it was created, and its complexities and requirements may no longer be applicable to today’s borrowers. Rehabilitation was initially developed to work within the bank-based FFEL loan program and has not undergone significant reforms since the creation of income-driven plans or the elimination of the issuance of new FFEL loans in 2010.⁸⁹ Because it was created to work within the banking system, the additional requirements for rehabilitation— including the establishment of a history of timely payments and additional documentation from the borrower—were implemented to help guarantors market rehabilitated loans as performing assets to investors. Importantly, this rationale does not apply to the Direct Loan program, where rehabilitated loans will be transferred to loan servicers contracted by the Department of Education. Since 2010, the department has been the lender for all new federal loans through the Direct Loan program.

Problem #3: Borrowers experience obstacles transitioning to an income-driven plan after rehabilitation

Research consistently finds that borrowers enrolled in income-driven plans are less likely to default than those enrolled in fixed payment plans.⁹⁰ Looking specifically at previously defaulted borrowers, the CFPB found that they were about one-fifth as likely to re-default if they enrolled in income-driven plans after rehabilitation.⁹¹ Fewer than 10% of borrowers in income-driven plans re-defaulted within three years of exiting default, compared with 45% of borrowers who did not enroll in income-driven plans after rehabilitation. Additionally, virtually all (more than 95%) of the borrowers who completed rehabilitation and defaulted for a second time were not enrolled in income-driven plans at the time of their re-default.

However, as explained above, many borrowers do not successfully enter income-driven plans after rehabilitation. Examining data from student loan servicers, the CFPB found that fewer than 1 in 10 borrowers who completed rehabilitation were enrolled in an income-driven plan within the first nine months of exiting default.⁹² In contrast, consolidation can provide a faster track into income-driven repayment, since borrowers can consolidate directly into an income-driven plan to resolve their defaults.

The lack of a seamless handoff between collections and servicing has created obstacles for income-driven plan enrollment and long-term repayment success. After completing rehabilitation, borrowers reported that collection agencies and servicers did not effectively communicate with each other or help them enroll into income-driven repayment.⁹³ Borrowers complained about receiving inadequate information from their new servicers about how to enroll in income-driven plans, and some reported being directed to forbearance and deferment instead. Borrowers are allowed to continue sending their rehabilitation payment amount to their new servicer for up to three months, but after that grace period, their monthly payments will be based on a standard 10-year repayment plan if they do not enroll in a different plan.

Additionally, differences between rehabilitation payments and payments under income-driven plans can complicate the transition into income-driven repayment. The calculation used for rehabilitation payments differs from the formula used for payments in income-driven plans. This means that although borrowers may be able to afford rehabilitation payments, they may not be able to afford potentially higher income-driven payments once they exit default. This difference may set defaulted borrowers off track as they re-enter the repayment system. Table 1 below shows the differences between monthly payment calculations in the most recent income-driven plans, rehabilitation payments, and wage garnishment amounts.

Table 1

Borrowers Experiencing Default Must Pay a Higher Share of Wages Than Borrowers Enrolled in Income-Driven Repayment Plans

Monthly payment amounts under income-driven plans, rehabilitation, and wage garnishment

For loan rehabilitation, monthly payments are based on 15% of borrowers’ annual discretionary income, and the minimum payment is $5. In contrast, the most recent income-driven plans calculate borrowers’ payments as 10% of their annual discretionary income, and payments can be as low as $0. Under income-driven plans, the payment calculation does not account for borrowers’ expenses. As a result, borrowers with high expenses could face larger payments in income-driven plans than under rehabilitation.

Problem #4: Existing collections methods can cause financial hardship and make it more difficult to afford to exit default

Forced collections

Although they can be effective in recouping defaulted loan balances, forced collections can cause severe financial hardship to borrowers, because borrowers can end up paying more through collections than they would have in repayment. Forced collections, also known as “involuntary payments,” include wage garnishment, Treasury offsets of tax refunds (including the Earned Income Tax Credit), and Social Security offsets. See “Overview of the student loan default process” for more details about these forms of collection.

These consequences can motivate some borrowers to avoid default or take action to put their loans back into good standing, but they can come at a steep price.⁹⁹ For example, one report found that after their occupational licenses were revoked, some borrowers took action to resolve their defaulted student loans but had to make substantial financial sacrifices to do so, such as forgoing basic needs or taking on more debt.¹⁰⁰

The percentage of income collected via wage garnishment and other forms of involuntary collection can be higher than what the same borrower would pay under income-driven plans. As shown in Table 1, the most recent income-driven plans calculate monthly payments based on 10% of a borrower’s “discretionary income.” In contrast, for wage garnishment, employers are instructed to deduct up to 15% of a borrower’s “disposable pay” from each paycheck. “Disposable pay” is defined as the income remaining after deductions and other expenses required by law, such as taxes.¹⁰¹ “Discretionary income” for the recent income-driven plans is defined as 150% of the federal poverty guideline for the borrower’s family size and state. Table 2 illustrates the amounts of income protected for a single borrower under income-driven plans, wage garnishment, and Social Security offset. The discretionary income definition for income-driven plans protects a larger share of borrowers’ income than the wage garnishment requirements.

Table 2

Income-Driven Repayment Plans Protect a Higher Share of Borrowers’ Income From Being Repaid or Collected

Amount of income protected under income-driven plans, wage garnishment, and Social Security offset for a single borrower

Older borrowers subject to Social Security offsets and borrowers subject to tax refund offsets may also experience further financial hardship as a consequence of these collection methods. The Social Security offset threshold is below the poverty threshold and is not adjusted for increases in the cost of living. Thus, borrowers subject to offsets can be left with benefits so reduced they force them to live below the poverty guideline. Only $9,000/year is protected from seizure,¹⁰⁶ and that amount has not changed since the Debt Collection Improvement Act passed in 1996, despite inflation and increases in the cost of living.¹⁰⁷ This offset threshold is only 66% of the 2022 poverty guideline for a household of one ($13,590).¹⁰⁸ The GAO found that in fiscal 2015, 66% of borrowers aged 50-64 were left with Social Security benefits below the poverty guideline after the offsets.¹⁰⁹ Similarly, tax refund offsets can create financial hardship: For example, Earned Income Tax Credit (EITC) refunds, which can be withheld for borrowers in default, are important for low-income working families, with the largest EITC payments going to families with children.¹¹⁰

Involuntary payments overlap with rehabilitation and consolidation, which can force borrowers to make larger combined payments toward their defaulted student loans during that time. Collections through wage garnishment or Treasury offset still occur during rehabilitation, and those payments do not count toward the nine on-time payments required for rehabilitation.¹¹¹ Wage garnishment orders and Treasury offsets are suspended after borrowers make five of nine required rehabilitation payments.¹¹²

Although borrowers are permitted in certain narrow circumstances to pause their involuntary payments as a way to avoid financial deprivation, the process can be difficult. The Department of Education has been criticized for failing to provide adequate information to borrowers about how to apply for a reduction or suspension of Social Security offsets due to financial hardship.¹¹³ Advocates have noted that it is very difficult to return a tax refund offset after it’s been initiated.¹¹⁴ Borrowers must show extreme financial hardship—defined by the department as an eviction or foreclosure—to halt their offset. Similarly, borrowers have experienced difficulty stopping wage garnishment. For example, some defaulted borrowers continued to have their paychecks garnished during the COVID-19 pandemic despite the ongoing collections moratorium.¹¹⁵ Though collections were supposed to be paused during the pandemic, GAO also found that the department erroneously seized more than $2 million in federal benefit and tax offsets from over 1 million defaulted borrowers after the pandemic-instituted pause began.¹¹⁶

Furthermore, there is no statute of limitations on collections for student loans, though collections will end when the borrower dies.¹¹⁷ Older borrowers with loans in default may face Social Security offsets for decades.¹¹⁸ And unlike other forms of unsecured debt such as credit cards or even secured home mortgage loans, federal law does not permit federal or private student loans to be discharged or restructured in bankruptcy.

Financial impacts of consequences of default

Defaulting negatively affects borrowers’ credit, and there are inconsistencies in how credit is restored between options for exiting default. As discussed in the “Consequences of default” appendix, servicers report loans that are more than 90 days delinquent or in default to the major national credit bureaus.¹¹⁹ This negative effect on borrowers’ credit causes financial hardship. Though borrowers can improve their credit by exiting default, their credit history is restored differently if they rehabilitate, consolidate, or fully pay off their loans. After a loan is successfully rehabilitated, the record of default is removed from the borrower’s credit history, though their delinquencies (late payments) will stay on their credit history for seven years from when they were first reported.¹²⁰ Meanwhile, records of default and missed payments remain on borrowers’ credit reports after consolidation or full payoff, though their credit report will show a loan paid in full, which can provide a credit boost.¹²¹ Analyses of credit bureau data found that defaulters are less likely to acquire household debt, including mortgages and credit card debt, than on-time borrowers.¹²² These differences may be because of defaulters’ lower credit scores after default.

Some states revoke occupational and driver’s licenses after borrowers default on their federal student loans.¹²³ This punishment is counterproductive, as it limits borrowers’ ability to maintain or increase an income to cure their default and pay off their loans. A 2018 analysis found that 18 states had laws on the books that allowed them to strip occupational and driver’s licenses from defaulted student loan borrowers.¹²⁴

Debt collection lawsuits can lead to overly punitive judgments against borrowers and are disproportionately concentrated in communities of color. As discussed under the “Consequences of default” appendix, legal action can be taken against borrowers when other collection mechanisms are not successful. Research has found that almost 60% of these cases resulted in a default judgment against the borrower, which in some cases may lead to a lien on their assets.¹²⁵ This is similar to recent findings from The Pew Charitable Trusts’ project on civil legal system modernization, which found that more than 70% of debt collection lawsuits overall end in default judgment.¹²⁶ For student loan defaulters, the judgment amount can be higher than what borrowers actually owed.¹²⁷ Borrowers subject to judgments lose the option to consolidate or rehabilitate their loans, narrowing their options for exiting default. Debt collection lawsuits are disproportionately concentrated in areas that house communities of color.¹²⁸ Researchers found that the ZIP codes where sued defaulted student loan borrowers live have twice the national average Hispanic population and three times the average Black population.

Collection fees can increase loan balances by a substantial amount, making it more difficult for borrowers to pay off their loans. Collection fee amounts vary based on loan holder, method of exiting default, and method of collection. Current fees are not published in widely available documents, but based on interviews with industry experts, researchers at AEI found that collection fees could be as much as 24% of their principal and interest balance. Borrowers who repay their loans in full after defaulting are charged higher collection fees than those who rehabilitate, and it is not clear what public policy purpose is served by those differences.

Problem #5: Borrowers in default were not receiving important information from private collection agencies (PCAs)

Even though the Department of Education announced that PCAs will no longer service defaulted loans that are held by the department,¹²⁹ research on borrowers’ experiences with PCAs can help inform improvements to their future communications with other department contractors.

Borrowers have complained about receiving misinformation from PCAs, such as whether rehabilitation payments can be based on income.¹³⁰ A survey conducted in 2011 and 2012 found that almost a quarter (24%) of defaulters didn’t even know they were in default when they sought out legal assistance.¹³¹ More recently, some borrowers have reported not receiving advance notice about forced collections. For example, the National Consumer Law Center found that many borrowers did not know that their tax refund would be seized.¹³² As a result, they did not have a chance to take action to prevent the offset before it was too late. Additionally, GAO found that some borrowers who had their Social Security offsets suspended while receiving disability benefits saw those offsets resume once they started receiving retirement benefits, without being given any advance notice.¹³³

Note that it is possible that notices were sent, but borrowers did not receive them or could not recall. For example, focus group research has found that borrowers who missed student loan payments can feel overwhelmed and ignore communications from servicers.¹³⁴ Borrower confusion about repayment options may contribute to a reluctance to engage with collectors.¹³⁵ In conversations with Treasury staff during the debt collection pilot project, borrowers were confused about why a third party was contacting them about their loans, rather than the Department of Education.¹³⁶ During delinquency, several third-party contractors contact borrowers under their own names, instead of department branding, which may heighten confusion.

Moreover, it can be difficult for companies to contact borrowers. The Treasury’s pilot program on student debt collection found that borrowers’ contact information may not be updated and that borrowers answered phone calls only 2% of the time.¹³⁷ A recent GAO report found that the contractor managing borrowers’ defaulted loans was missing valid email addresses for about half of those borrowers.¹³⁸ Even after the Department of Education provided additional email addresses from other data sources, email addresses were still missing for about a quarter of defaulted borrowers.

Proposed principles of reform for a new default system

This section proposes reforms to address the five key problems related to the student loan default process, as identified in the research. These recommendations support the overarching goal of keeping borrowers in repayment and out of default. As the department considers plans for a new collections system and procurement in the coming years, it should consider the following:

Problem: Many borrowers who exit default are re-defaulting

Proposed reform: Improve the student loan repayment system to prevent borrowers from defaulting in the first place and from churning in and out of default. Although this paper focuses on the default process (i.e., what happens to borrowers after they default), addressing the prevalence of re-default requires making changes to the broader repayment system. Too many student loan borrowers are defaulting in the first place, and too many borrowers who exit default are ending up in default again. Helping borrowers avoid default, for the first time or a subsequent time, requires making substantial improvements to repayment options, as well as to pre-default counseling and interventions.

Options for reform include improving pre-default counseling and interventions,¹³⁹ simplifying repayment options, automatically enrolling severely delinquent borrowers in income-driven plans, making it easier for borrowers to enroll and remain in income-driven plans, and ensuring that payments under income-driven plans are affordable, particularly for low-income and low-resource borrowers.¹⁴⁰ Additionally, student loans could be restructured (e.g., by changing the treatment of interest) to allow borrowers to experience more positive momentum toward paying down their loan balances, which could motivate them to stay engaged with repayment.¹⁴¹

Problem: The consequences of default can be harmful to borrowers and counterproductive to exiting default

Principle for reform: Prevent borrowers from experiencing these consequences by eliminating the separate status of default. Instead of being placed in a separate default status, borrowers could remain in a form of long-term delinquency. Collections activity would not take place, though borrowers would continue to experience negative effects of missed payments on their credit history until they bring their loans back to good standing.¹⁴²

Principle for reform: If collections still exist, ensure that borrowers do not pay more in collections than they would have in repayment. There are several potential options to align the default experience with the repayment experience for borrowers. A statute of limitations could be imposed for student loan collections.¹⁴³ Borrowers could be responsible only for past-due amounts, rather than the entire loan balance (which occurs in the current practice of “acceleration”).¹⁴⁴ Involuntary payment amounts could be capped at the amount borrowers would have paid under an income-driven plan, including $0 payments for borrowers with no calculated discretionary income.¹⁴⁵ Alternatively, certain low-income borrowers (e.g., those who qualify for the EITC or Child Tax Credit) could be excluded from involuntary payments,¹⁴⁶ or all borrowers could be provided an easier process to suspend or reduce involuntary payments because of financial hardship.¹⁴⁷

Principle for reform: Reduce other consequences of default. Beyond collections, changes could be made to other outcomes of default. Policies could prevent occupational or driver licenses from being revoked because of student loan default¹⁴⁸ or prevent borrowers from facing overly punitive judgments from debt collection lawsuits.¹⁴⁹ Collection fees could be reduced, simplified, and made more transparent to borrowers.¹⁵⁰ Changes could also be made to credit reporting; for example, the default notation could be removed from credit reports in all cases when borrowers exit default.¹⁵¹

Problems: The options available for resolving defaults are complex and inflexible, and borrowers experience obstacles transitioning to an income-driven plan after rehabilitation

Principle for reform: Make it easier for borrowers to exit default and re-enter repayment, so they can avoid the most serious consequences of default. The current rehabilitation and consolidation options could be replaced by a new system that offers different methods of exiting default:¹⁵²

• Borrowers could exit default by paying their past-due amounts
• Borrowers who default could be automatically enrolled in an income-driven plan and could exit default by making their first payment (including $0 payments for the lowest income borrowers).¹⁵³

Defaulted borrowers who are automatically enrolled in an income-driven plan, have a monthly payment greater than $0, and do not make a payment would remain in default. Involuntary collections could be limited to what borrowers would have paid under income-driven plans, and there could be a statute of limitations on collections (aligned with the maximum repayment period for the most recent income-driven plans).

If rehabilitation and consolidation are retained as options for exiting default, changes could be made to improve those processes. For example, the one-time limit on rehabilitation and consolidation could be eliminated.¹⁵⁴ Defaulted borrowers could exit default by enrolling in income-driven plans, without needing to first rehabilitate.¹⁵⁵ The process of submitting information for rehabilitation could be streamlined,¹⁵⁶ and the transition between rehabilitation and income-driven plans could be improved.¹⁵⁷

Changes could also be made to help borrowers exit default by discharging their defaulted loans. For example, they could be provided an easier path toward bankruptcy¹⁵⁸ or other forms of loan discharge.¹⁵⁹ Changes could also be made to settlements (also known as compromises), which allow borrowers to pay off their defaulted loans with a reduced amount.¹⁶⁰

Problem: Borrowers in default were not receiving the information they needed from private collection agencies (PCAs).

Principle for reform: Improve borrower communication from the Department of Education and its contractors. Although PCA contracts have now been terminated, any companies working to service defaulted loans should, at a minimum, provide complete and accurate information to borrowers about all options for exiting default. If collections activity will be imposed, those servicers should provide notice to borrowers and explain how those involuntary payments can be suspended or reduced.¹⁶¹ Those servicers should use consistent department branding to help minimize borrower confusion.¹⁶² Additionally, those companies should receive sufficient oversight and could be evaluated based on the quality of their borrower service.¹⁶³ If such oversight determines that borrowers have been harmed as a result of poor servicing, the department should also consider creating standardized methods for borrowers to file a complaint and receive recourse.

More transparency and data are needed about borrowers’ experiences in default

The Department of Education should provide more transparency around the process of default, including details about the timing of different consequences and the options available to borrowers. Although the department provides some information about delinquency and default on its StudentAid.gov website, key details are not publicly available.¹⁶⁴ For example, the department’s webpage for borrowers on exiting default does not mention the option to negotiate a settlement for a reduced amount.¹⁶⁵ Additionally, the department does not publish current collection fees for defaulted borrowers. For their analyses, some researchers had to conduct interviews with industry experts to uncover collection fee amounts for different situations.¹⁶⁶

Additionally, the department should provide updated and granular data to help policymakers and other stakeholders better understand borrowers’ experiences with default. The most robust, publicly available source of national data on borrowers’ repayment history is the National Center for Education Statistics’ 2015 Federal Student Aid Supplement, which linked data from the Beginning Postsecondary Students Longitudinal Study (BPS) to administrative data from the National Student Loan Data System (NSLDS).¹⁶⁷ That data tracks students who started college during the 1995-96 or 2003-04 years. The federal student loan program has changed in substantial ways since then, including the transition to the Direct Loan program, the introduction of and expanded enrollment in income-driven repayment plans, and the COVID-19 pandemic payment pause. More recent data would cast light on how borrowers today are experiencing default.

In particular, updated and granular data is needed on the following metrics. Most of these metrics can and should be provided by the Department of Education, which has access to the most direct and comprehensive data on defaulted student loan borrowers. Data could be provided through anonymized extracts from the NSLDS, regularly updated reports on the Federal Student Aid Data Center,¹⁶⁸ sample surveys such as BPS, or other methods.

1. The share of borrowers experiencing specific consequences of default, such as wage garnishment, tax refund offset, and Social Security offset. What share of borrowers experience multiple forms of collection at the same time?
2. The share of borrowers exiting default and the share who eventually re-default. How does the risk of re-default differ based on how borrowers exited default, borrower characteristics and financial security, or other factors?
3. How borrowers are exiting default.
   1. What share of borrowers exit default through full payoff, consolidation, rehabilitation, or loan forgiveness/discharge?
   2. Of those who fully paid off their defaulted loans, what share did so using voluntary payments, involuntary payments, or a combination of both?
   3. For those who made voluntary payments, what share negotiated a settlement for a reduced amount?
   4. Of those who consolidated to exit default, what share did so by enrolling in income-driven plans versus making three on-time monthly payments?
   5. Of those who exited default through rehabilitation, what share calculated their rehabilitation payments using the 15% formula versus the alternative approach that factors in expenses? What share of those who attempted rehabilitation succeeded at completing all nine payments?
   6. What share of defaulted borrowers experienced collections while also making rehabilitation payments?
4. The transition from rehabilitation into income-driven plans, including the affordability of payments in each situation (e.g., what share of borrowers had a higher monthly payment in an income-driven plan versus in rehabilitation, and vice-versa?).

For the metrics above, it would be helpful to disaggregate outcomes by borrower characteristics such as credential completion status, income, other debt obligations, race/ethnicity, and gender. That disaggregation would shed light on how borrowers’ characteristics may affect their experiences in default and trying to exit default. It would also be helpful to track borrowers’ repayment histories for a longer period.

Conclusion

The current student loan default system imposes financial hardship on struggling borrowers and has failed to sustainably bring borrowers current—many of those who exit default end up defaulting again. One key reason for this is that the options for resolving default can be confusing and inflexible, making it difficult for borrowers to transition out of default into a more affordable payment in an IDR plan. Penalties including wage and benefits garnishment can make such barriers even harsher.

The post-pause restart of the student loan repayment system presents an opportunity to rethink the role of default. As the department moves forward, it should be mindful of the myriad problems researchers have identified within the default system and seek to implement reforms that will meet struggling borrowers’ needs.

Appendix A

Consequences of Default and Collection Fees

Consequences of default¹⁶⁹

Borrowers who default on their student loans face a number of consequences that can occur simultaneously. For example, borrowers could have money withheld from their federal income tax returns while also having a portion of their wages withheld. The stacking of such penalties further drives the severity of default’s consequences for many borrowers.

Acceleration

After borrowers default, the entire outstanding balance of their defaulted loan(s), including any accrued interest, becomes immediately due through a process called “acceleration.”¹⁷⁰ Additionally, interest typically continues to accrue on loans that are delinquent and in default. Interest accrual has been temporarily suspended as part of COVID-19 emergency relief.¹⁷¹

Loss of eligibility for repayment tools and financial aid

Borrowers in default also lose access to repayment options and other federal programs. They can no longer receive deferments or forbearances (tools used to pause payments for short-term periods), which can be helpful for borrowers facing short-term economic insecurity.¹⁷² Borrowers who had been enrolled in IDR plans lose eligibility for these plans.¹⁷³ Furthermore, borrowers in default are ineligible for additional federal student aid and can have their academic transcripts withheld.

Notation on credit

Loan servicers are required to report loans that are more than 90 days delinquent to the major national credit bureaus, and these notations can remain on borrowers’ credit reports for up to seven years.¹⁷⁴ Defaulting causes further harm to borrowers’ credit. Borrowers can improve their credit by exiting default, though this depends on what mechanism they choose to restore their loan to good standing.¹⁷⁵ For example, borrowers who use rehabilitation to exit default will have the record of default removed from their credit history. Borrowers with poor credit will pay more for or have difficulty obtaining credit cards, home or car loans, an apartment rental, and other consumer credit and insurance products.¹⁷⁶

Forced collections

If borrowers do not make arrangements to repay their debt, the department can use a variety of methods to collect on defaulted federal student loans. These forced collections, also known as “involuntary payments,” include wage garnishment, offsets of tax refunds (including the Earned Income Tax Credit), and Social Security offsets.¹⁷⁷ Collections continue until the defaulted loan is paid in full or removed from default. There is no time limit for collections on defaulted federal student loans, though collections will end when the borrower dies.¹⁷⁸

Treasury offset

Through the Treasury Offset Program, the Department of Education can direct the Department of the Treasury to withhold money from the borrower’s federal or state income tax refunds, Social Security disability and retirement benefits, and certain other federal payments to be applied toward the repayment of a defaulted student loan.¹⁷⁹ Almost all tax refunds are subject to seizure, including the refundable portion of tax credits such as the Earned Income Tax Credit.¹⁸⁰ For Social Security offsets, only $9,000/year is protected from seizure, which is $750/month.¹⁸¹ Social Security offset amounts are also limited to 15% of the monthly benefit payment.¹⁸²

Borrowers can avoid Treasury offsets by entering into a voluntary repayment plan, but entering into a voluntary payment agreement will not stop offsets after they have started.¹⁸³ Tax refund offsets can only be suspended in cases of extreme hardship, which is generally limited to borrowers facing foreclosure or eviction.¹⁸⁴ Borrowers can request a suspension or reduction of Social Security offsets.¹⁸⁵ The withholding of Social Security disability benefits will be suspended if the Social Security

Administration (SSA) determines that the borrower is totally disabled, with medical improvement not expected.¹⁸⁶ However, the withholdings may resume without notice if the SSA converts the borrower’s disability benefits to retirement benefits.

Wage garnishment

Similarly—and sometimes simultaneously—a borrower’s wages can be garnished to collect on defaulted debt without needing to take the borrower to court.¹⁸⁷ Employers can be ordered to withhold up to 15% of a borrower’s “disposable pay.”¹⁸⁸ When implementing wage garnishment, employers must ensure that borrowers are left with at least $218 per week (30 hours at the federal minimum wage of

$7.25/hour), which is about $11,300 per year.¹⁸⁹ Borrowers can avoid wage garnishment by establishing a voluntary repayment agreement or requesting a hearing.¹⁹⁰ Borrowers can also request a hearing to obtain a reduction in garnishment amounts, such as by claiming financial hardship.¹⁹¹

Litigation

When other collection measures are not successful, borrowers can be referred to the Department of Justice for litigation.¹⁹² The Department of Education describes litigation as “a last resort pursued for a relatively small number of borrowers.”¹⁹³ Borrowers can face litigation even if they have small outstanding balances. The minimum principal balance for borrower accounts to be pursued through litigation by U.S. Attorney’s Offices is $25,000, but only $600 for private attorneys who contract with the Department of Justice.¹⁹⁴ An analysis found that the large majority (71%) of lawsuits against defaulted borrowers are won by the government.¹⁹⁵ In many cases, debt collectors obtain “default judgments,” which are automatically entered in favor of the plaintiff (the U.S. government) because the defendant (borrower) did not file an appearance or respond to the complaint within the required time frame. Borrowers who lose their cases and receive court judgments are no longer able to consolidate or rehabilitate their loans, so they can exit default only by paying in full.¹⁹⁶

Loss of professional license

Borrowers’ employment can be jeopardized after they default on their student loans. Some borrowers who default are at risk of having their driver’s or professional licenses suspended, compromising their ability to continue working.¹⁹⁷ A 2018 analysis found that 18 states revoke occupational and driver’s licenses after borrowers default on their federal student loans.¹⁹⁸ There have been recent efforts at both the federal and state levels to remove this consequence of student loan default.¹⁹⁹ Similarly, military service members, contractors, and federal employees with delinquent or defaulted debt can be denied security clearances, duty stations, and promotions.²⁰⁰

Collection fees

Borrowers who default face collection fees, which can substantially increase their costs. Collection fee amounts vary based on loan holder, method of exiting default, and method of collection. Those amounts are set by the Department of Education, and current fees are not published in any widely available documents. There are some upper limits to how much can be charged, but the department can charge lower fees or waive them entirely.²⁰¹ All outstanding interest and collection fees are capitalized—added to borrowers’ principal balance—when defaulted loans are consolidated, which increases the loan principal subject to future interest charges.²⁰²

Collection fees are assessed differently for borrowers seeking to exit default through rehabilitation.²⁰³ Rather than being added to the balance of the defaulted loan, collection fees were only applied to the nine qualifying rehabilitation payments if the borrower was assigned to a PCA.²⁰⁴ Approximately 20% of each payment would be applied to collection fees, and the rest would be applied to interest and principal. An analysis found that the department’s collection fee structure allowed borrowers to pay much lower collection fees if they exit default through rehabilitation than if they repay their defaulted loans in full.²⁰⁵ Note that this fee structure may change over time, particularly as different entities are brought on to service defaulted loans.

Borrowers also incur collection fees if they are experiencing forced collections through wage garnishment and tax refund offsets. Based on interviews with industry experts, researchers at AEI found that 19.6% of payments made through wage garnishment were deducted for collection fees and that Treasury deducted a flat $17 fee for each tax refund offset.²⁰⁶

Note that some of the procedures above have been temporarily suspended as part of COVID-19 emergency relief.²⁰⁷ Collections have been stopped for eligible defaulted loans through Dec. 31, 2022, and interest will not accrue on those loans. Collections through Treasury offset, including withholding of tax refunds and Social Security benefits, will remain paused for six months after the COVID-19 payment pause ends. For defaulted borrowers who started rehabilitating their loans, the paused payments will count toward the nine payments required for rehabilitation.

External reviewers

This report benefited from the insights and expertise of Persis Yu of the Student Borrower Protection Center and Sarah Sattelmeyer of New America. Although they reviewed preliminary findings and various drafts of the report, neither they nor their organizations necessarily endorse its conclusions.

Acknowledgments

The Pew Charitable Trusts’ project on student borrower success thanks Diane Cheng, who acted as a research consultant and key collaborator throughout this report’s research and drafting process. The project also thanks current and former colleagues Esther Rege Berg, Sophie Bertazzo, Carrie Hritz, Ilan Levine, Matt McKillop, Phil Oliff, Jon Remedios, Christopher Rountree, Sarah Spell, Ama Takyi-Laryea, Kate Williams, Rich Williams, and Mark Wolff for their thoughtful suggestions and production assistance.

Endnotes

1. Office of Federal Student Aid, “Federal Student Loan Portfolio,” accessed Aug. 16, 2022, https://studentaid.gov/data-center/student/portfolio. The total student loan holders figure includes direct and Perkins loans and loans from the Federal Family Education Loan (FFEL) program. The total borrowers in default figure includes direct loans and FFEL loans, and borrowers with both types of loans may be counted more than once. Although default technically occurs after 270 days of missed payments, these figures measure default after 360 days.
2. U.S. Department of Education, “Biden-Harris Administration Extends Student Loan Pause Through August 31,” April 6, 2022, https://www.ed.gov/news/press-releases/biden-harris-administration-extends-student-loan-pause-through-august-31; Office of Federal Student Aid, “(Gen-22-13) Federal Student Aid Eligibility for Borrowers With Defaulted Loans,” Aug. 17, 2022, https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2022-08-17/federal-student-aid-eligibility-borrowers-defaulted-loans.
3. J. Goss, D. Mangrum, and J. Scally, “Revisiting Federal Student Loan Forgiveness: An Update Based on the White House Plan” (Federal Reserve Bank of New York, 2022), https://libertystreeteconomics.newyorkfed.org/2022/09/revisiting-federal-student-loan-forgiveness-an-update-based-on-the-white-house-plan/.
4. B. Miller, “Who Are Student Loan Defaulters?” (Center for American Progress, 2017), https://www.americanprogress.org/issues/education-postsecondary/reports/2017/12/14/444011/student-loan-defaulters/.
5. Office of Federal Student Aid, “Student Loan Delinquency and Default,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/default.
6. Ibid.
7. C. Vargas, “Philly City Council Wants an Audit of New Property Assessments,” The Philadelphia Inquirer, April 19, 2018, https://www.inquirer.com/philly/news/politics/philadelphia-assessments-property-taxes-darell-clarke-jim-kenney-20180419.html; Office of Federal Student Aid, “Student Loan Delinquency.”
8. U.S. Government Accountability Office, “Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Retirees” (2014), https://www.gao.gov/assets/gao-14-866t.pdf.
9. Ibid.
10. Ibid.
11. Ibid.; Senator Patty Murray, “Questions Submitted by Senator Patty Murray” (2019), https://www.help.senate.gov/imo/media/doc/SenMurrayQFRresponses32819LHHShearing.pdf; D. Loonin and P. Yu, “Pounding Student Loan Borrowers: The Heavy Costs of the Government’s Partnership With Debt Collection Agencies” (National Consumer Law Center, 2014), https://www.nclc.org/images/pdf/pr-reports/report-sl-debt-collectors.pdf.
12. Loonin and Yu, “Pounding Student Loan Borrowers”; J. Delisle, P. Cooper, and C. Christensen, “Federal Student Loan Defaults: What Happens After Borrowers Default and Why” (American Enterprise Institute, 2018), https://www.aei.org/research-products/report/federal-student-loan-defaults-what-happens-after-borrowers-default-and-why/.
13. Office of Federal Student Aid, “Collections on Defaulted Loans,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/default/collections; National Association of Student Financial Aid Administrators, “ED Ends Contracts With Student Loan Debt Collection Companies,” Nov. 8, 2021, https://www.nasfaa.org/news-item/26358/ED_Ends_Contracts_With_Student_Loan_Debt_Collection_Companies.
14. Office of Federal Student Aid, “Student Loan Delinquency”; Office of Federal Student Aid, “Collections on Defaulted Loans.”
15. Murray, “Questions Submitted by Senator Patty Murray”; U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot for Servicing Defaulted Student Loan Debt” (2016), https://web.archive.org/web/20170505171630/https://www.treasury.gov/connect/blog/Documents/student-loan-pilot-report-july-2016.pdf.
16. Murray, “Questions Submitted by Senator Patty Murray.”
17. R. Hiltonsmith, “Small Loans, Big Risks: Major Consequences for Student Debtors” (Demos, 2017), https://www.demos.org/research/small-loans-big-risks-major-consequences-student-debtors.
18. Ibid.; K. Blagg, “Underwater on Student Debt: Understanding Consumer Credit and Student Loan Default” (Urban Institute, 2018), https://www.urban.org/sites/default/files/publication/98884/underwater_on_student_debt_0.pdf.
19. Blagg, “Underwater on Student Debt”; Hiltonsmith, “Small Loans, Big Risks.”
20. Lumina Foundation, “Changing the Narrative on Student Borrowers of Color” (2021), https://www.luminafoundation.org/wp-content/uploads/2021/02/borrowers-of-color-2.pdf.
21. J. Scott-Clayton, “The Looming Student Loan Default Crisis Is Worse Than We Thought” (The Brookings Institution, 2018), https://www.brookings.edu/research/the-looming-student-loan-default-crisis-is-worse-than-we-thought/.
22. S. Sattelmeyer, “Trapped by Default” (New America, 2022), https://www.newamerica.org/education-policy/briefs/trapped-by-default/.
23. J.B. Mustaffa and J.C.W. Davis, “Jim Crow Debt: How Black Borrowers Experience Student Loans” (The Education Trust, 2021), https://edtrust.org/wp-content/uploads/2014/09/Jim-Crow-Debt_How-Black-Borrowers-Experience-Student-Loans_October-2021.pdf.
24. J. Scott-Clayton and J. Li, “Black-White Disparity in Student Loan Debt More Than Triples After Graduation” (The Brookings Institution, 2016), https://www.brookings.edu/research/black-white-disparity-in-student-loan-debt-more-than-triples-after-graduation/; S. Sattelmeyer and J. Remedios, “Race and Financial Security Play Central Roles in Student Loan Repayment,” The Pew Charitable Trusts, Dec. 15, 2020, https://www.pewtrusts.org/en/research-and-analysis/articles/2020/12/15/race-and-financial-security-play-central-roles-in-student-loan-repayment.
25. Sattelmeyer and Remedios, “Race and Financial Security Play Central Roles in Student Loan Repayment.”
26. D. Leonhardt, “The Black-White Wage Gap Is as Big as It Was in 1950,” The New York Times, June 25, 2020, https://www.nytimes.com/2020/06/25/opinion/sunday/race-wage-gap.html.
27. The Pew Charitable Trusts, “Student Loan System Presents Repayment Challenges” (2019), https://www.pewtrusts.org/en/research-and-analysis/reports/2019/11/student-loan-system-presents-repayment-challenges; Miller, “Who Are Student Loan Defaulters?”; L. Ahlman, “Casualties of College Debt: What Data Show and Experts Say About Who Defaults and Why” (The Institute for College Access and Success, 2019), https://ticas.org/sites/default/files/pub_files/casualties_of_college_debt_0.pdf.
28. L. Ahlman, “Casualties of College Debt.”
29. Scott-Clayton, “The Looming Student Loan Default Crisis.”
30. Miller, “Who Are Student Loan Defaulters?”; L. Ahlman, “Casualties of College Debt”; The Pew Charitable Trusts, “Student Loan System Presents Repayment Challenges.”
31. Miller, “Who Are Student Loan Defaulters?”; L. Ahlman, “Casualties of College Debt”; The Pew Charitable Trusts, “Student Loan System Presents Repayment Challenges”; C. Campbell and N. Hillman, “A Closer Look at the Trillion: Borrowing, Repayment, and Default at Iowa’s Community Colleges” (Association of Community College Trustees, 2015), https://www.acct.org/files/Publications/2015/ACCT_Borrowing-Repayment-Iowa_CCs_09-28-2015.pdf.
32. Hiltonsmith, “Small Loans, Big Risks.”
33. Miller, “Who Are Student Loan Defaulters?”; L. Ahlman, “Casualties of College Debt”; The Pew Charitable Trusts, “Student Loan System Presents Repayment Challenges.”
34. L. Ahlman, “Casualties of College Debt”; Council of Economic Advisers Executive Office of the President of the United States, “Investing in Higher Education: Benefits, Challenges, and the State of Student Debt” (2016), https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160718_cea_student_debt.pdf; Miller, “Who Are Student Loan Defaulters?”
35. L. Ahlman, “Casualties of College Debt.”
36. Ibid.; Miller, “Who Are Student Loan Defaulters?”
37. U.S. Government Accountability Office, “Social Security Offsets: Improvements to Program Design Could Better Assist Older Student Loan Borrowers With Obtaining Permitted Relief” (2016), https://www.gao.gov/products/gao-17-45; P. Granville, “Parent PLUS Borrowers: The Hidden Casualties of the Student Debt Crisis” (The Century Foundation, 2022), https://tcf.org/content/report/parent-plus-borrowers-the-hidden-casualties-of-the-student-debt-crisis/; K. Lang, B. Lilly, and J. Whitelaw, “Ensuring Debt Relief for Older Borrowers” (Student Borrower Protection Center, 2022), https://protectborrowers.org/wp-content/uploads/2022/08/Beyond-Fresh-Start.pdf#page=57.
38. Office of Federal Student Aid, “Getting Out of Default,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/default/get-out.
39.   “Discretionary income” is defined as the difference between the borrower’s adjusted gross income (AGI)—as reported on federal tax returns—and 150% of the federal poverty guidelines for the borrower’s family size and state of residence. Ibid.
40. Ibid.
41. Ibid.
42. Ibid.
43. Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions,” accessed Aug. 16, 2022, https://fsapartners.ed.gov/knowledge-center/faqs/loan-servicing-and-collection-frequently-asked-questions.
44. Office of Federal Student Aid, “Getting Out of Default.”
45. However, borrowers who consolidate their loans to exit default may regain access to rehabilitation if they default on their consolidation loan. Ibid.; Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman” (2016), https://files.consumerfinance.gov/f/documents/102016_cfpb_Transmittal_DFA_1035_Student_Loan_Ombudsman_Report.pdf; D. Loonin and J. McLaughlin, “The Student Loan Default Trap: Why Borrowers Default and What Can Be Done” (National Consumer Law Center, 2012), https://www.studentloanborrowerassistance.org/wp-content/uploads/File/student-loan-default-trap-report.pdf.
46. Office of Federal Student Aid, “Getting Out of Default.”
47. Ibid.
48.   Note that FFEL consolidation loans can be reconsolidated into a direct consolidation loan without including additional loans, but a direct consolidation loan cannot be reconsolidated without including additional eligible loans. Ibid.; E. Spinney et al., “Disproportionate Minority Contact in the U.S. Juvenile Justice System: A Review of the DMC Literature, 2001–2014, Part I,” Journal of Crime and Justice 41, no. 5 (2018): 573-95, https://doi.org/10.1080/0735648X.2018.1516155.
49. Office of Federal Student Aid, “Getting Out of Default”; Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Loonin and McLaughlin, “The Student Loan Default Trap”; Spinney et al., “Disproportionate Minority Contact in the U.S. Juvenile Justice System.”
50. Office of Federal Student Aid, “Getting Out of Default.”
51. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
52. Office of Federal Student Aid, “Student Loan Consolidation,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/consolidation.
53. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
54. Ibid.
55. Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions”; Consumer Financial Protection Bureau, “Update From the CFPB Student Loan Ombudsman: Transitioning From Default to an Income-Driven Repayment Plan” (2017), https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201705_cfpb_Update-from-Student-Loan-Ombudsman-on-Redefaults.pdf.
56. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults.”
57. Ibid.
58. National Consumer Law Center, “Student Loan Law—7.6 Compromise and Write-Off Authority,” accessed Aug. 16, 2022, https://library.nclc.org/book/student-loan-law/761-general.
59. Office of Federal Student Aid, “Student Loan Forgiveness,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/forgiveness-cancellation.
60. Office of Federal Student Aid, “Discharge in Bankruptcy,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy.
61. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Blagg, “Underwater on Student Debt”; U.S. Government Accountability Office, “Social Security Offsets.”
62. U.S. Government Accountability Office, “Social Security Offsets.”
63. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults.”
64. Blagg, “Underwater on Student Debt.”
65. J. Scott-Clayton, “What Accounts for Gaps in Student Loan Default, and What Happens After” (Brookings Institution, 2018), https://www.brookings.edu/research/what-accounts-for-gaps-in-student-loan-default-and-what-happens-after/.
66. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Scott-Clayton, “What Accounts for Gaps in Student Loan Default”; Miller, “Who Are Student Loan Defaulters?”
67. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults.”
68. Ibid.
69. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
70. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults.”
71. Miller, “Who Are Student Loan Defaulters?”
72. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
73. Consumer Financial Protection Bureau, “Update From the CFPB Student Loan Ombudsman (2017).”
74. Ibid.
75. L. Ahlman, “Casualties of College Debt.”
76. U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
77. Spinney et al., “Disproportionate Minority Contact in the U.S. Juvenile Justice System.”
78. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults.”
79. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016)”; Loonin and McLaughlin, “The Student Loan Default Trap.” However, borrowers who consolidate their loans to exit default may regain access to rehabilitation if they default on their consolidation loan.
80. Office of Federal Student Aid, “Getting Out of Default”; Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Loonin and McLaughlin, “The Student Loan Default Trap”; Spinney et al., “Disproportionate Minority Contact in the U.S. Juvenile Justice System.”
81. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
82. U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
83. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
84. U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
85. Office of Federal Student Aid, “Instructions for Loan Rehabilitation Income and Expense Information,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/default/get-out/rehabilitation-income-expense-instructions.
86. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016)”; U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
87. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016)”; U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
88. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
89. Ibid.
90. Congressional Budget Office, “Income-Driven Repayment Plans for Student Loans: Budgetary Costs and Policy Options” (2020), https://www.cbo.gov/publication/55968; H.M. Mueller and C. Yannelis, “The Rise in Student Loan Defaults,” Journal of Financial Economics 131, no. 1 (2017): 1-19, http://people.stern.nyu.edu/hmueller/papers/sld.pdf; Campbell and Hillman, “A Closer Look at the Trillion”; U.S. Government Accountability Office, “Federal Student Loans: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Obligations” (2015), https://www.gao.gov/assets/680/672136.pdf.
91. Consumer Financial Protection Bureau, “Update From the CFPB Student Loan Ombudsman (2017).”
92. Ibid.
93. Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
94. For more information about income-driven plans, see The Pew Charitable Trusts, “Redesigned Income-Driven Repayment Plans Could Help Struggling Student Loan Borrowers” (2022), https://www.pewtrusts.org/en/research-and-analysis/reports/2022/02/redesigned-income-driven-repayment-plans-could-help-struggling-student-loan-borrowers.
95. “Discretionary income” is defined as the difference between the borrower’s adjusted gross income (AGI)—as reported on federal tax returns—and 150% of the federal poverty guidelines for the borrower’s family size and state of residence.
96. Note that borrowers who are seeking to rehabilitate their defaulted loans and cannot afford a 15% payment can ask their loan holders to calculate an alternative monthly payment that accounts for their expenses, as well as their income. 
97. “Disposable income” is defined as the income remaining after deductions and other expenses required by law, such as taxes.
98. Unlike income-driven plans and the rehabilitation process, wage garnishment does not have a concept of qualifying minimum payments. However, if the borrower has no disposable income, wages will not be garnished.
99. The Pew Charitable Trusts, “Student Loan Default Has Serious Financial Consequences” (2020), https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2020/04/student-loan-default-has-serious-financial-consequences; C. Yannelis, “Strategic Default on Student Loans” (2020), https://faculty.chicagobooth.edu/-/media/faculty/constantine-yannelis/research/strategicdefault.pdf; C.J. Dieterle, S. Weissmann, and G. Watson, “How States Use Occupational Licensing to Punish Student Loan Defaults” (R Street Institute, 2018), https://www.rstreet.org/2018/06/27/how-states-uses-occupational-licensing-to-punish-student-loan-defaults/; J. Delisle and A. Holt, “Why Student Loans Are Different: Findings From Six Focus Groups of Student Loan Borrowers” (New America, 2015), https://static.newamerica.org/attachments/2358-why-student-loans-are-different/StudentLoansAreDifferent_March11_Updated.e7bf17f703ad4da299fad650f47ac343.pdf.
100. Dieterle, Weissmann, and Watson, “How States Use Occupational Licensing to Punish Student Loan Defaults.”
101. C. Vargas and C. McCabe, “Philly’s New Property Assessments Are Out—and Your Tax Bill Is Likely Climbing,” The Philadelphia Inquirer, April 8, 2018, https://www.inquirer.com/philly/news/politics/philadelphia-property-assessments-2019-tax-increase-kenney-20180408.html.
102. For more information about income-driven plans, see The Pew Charitable Trusts, “Redesigned Income-Driven Repayment Plans.”
103. This figure is calculated as 150% of the 2022 poverty guideline for a single borrower.
104. This figure is calculated as 30 hours/week at the federal minimum wage of $7.25/hour. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; U.S. Code § 1673, Restriction on Garnishment; L. McCrystal, “How Does Philly Assess Property? Taxpayers Will Have to Wait for Complete Answers,” The Philadelphia Inquirer, March 11, 2019, https://www.inquirer.com/news/opa-assessment-method-philadelphia-market-value-20190311.html; U.S. Department of Labor Wage and Hour Division, “Minimum Wage,” accessed Aug. 16, 2022, https://www.dol.gov/agencies/whd/minimum-wage.
105. Note that Social Security offset amounts are also limited to 15% of the monthly benefit payment. J. Aros Jr. (chief assessment officer, Philadelphia Office of Property Assessment), testimony before the Committee of the Whole (May 4, 2021), http://phlcouncil.com/wp-content/uploads/2021/05/FY22-Budget-Hearings-Testimony-_OPA_FINAL.pdf; Department of the Treasury, Offset of Federal Benefit Payments to Collect Past-Due, Legally Enforceable Nontax Debt, 31 CFR Part 285, https://www.govinfo.gov/content/pkg/FR-1998-08-21/pdf/98-22394.pdf.
106.  Note that Social Security offset amounts are also limited to 15% of the monthly benefit payment. Aros Jr., testimony; Department of the Treasury, Offset of Federal Benefit Payments.
107. P. Yu, “Pushed Into Poverty: How Student Loan Collections Threaten the Financial Security of Older Americans” (National Consumer Law Center, 2017), https://www.nclc.org/images/pdf/student_loans/student-loan-collections-threaten-fin-sec.pdf; U.S. Government Accountability Office, “Social Security Offsets.”
108. Office of the Assistant Secretary for Planning and Evalulation, “HHS Poverty Guidelines for 2022,” accessed Aug. 16, 2022, https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines.
109. Table 18 in the GAO’s report shows that 47% of borrowers had Social Security benefits below the poverty guidelines before the offset, but they were further reduced by offset. Nineteen percent had benefits reduced below the poverty guideline after the offset. U.S. Government Accountability Office, “Social Security Offsets.”
110. P. Yu, “Voices of Despair: How Seizing the EITC Is Leaving Student Loan Borrowers Homeless and Hopeless During a Pandemic” (National Consumer Law Center, 2020), https://www.nclc.org/images/pdf/student_loans/voices-of-despair-seizing-eitc-in-pandemic.pdf.
111. Office of Federal Student Aid, “Getting Out of Default.”
112. Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions.”
113. Yu, “Pushed Into Poverty”; U.S. Government Accountability Office, “Social Security Offsets.”
114. The Legal Aid Foundation of Los Angeles and The National Consumer Law Center, letter to Department of Education, “Re: Intent to Establish Negotiated Rulemaking Committee: Title IV of the Higher Education Act of 1965, as Amended (HEA),” July 1, 2021, https://www.nclc.org/images/pdf/student_loans/LAFLA_HEA_comment.pdf.
115. D. Douglas-Gabriel, “Trump Administration Is Still Garnishing the Wages of 54,000 Student Loan Borrowers,” The Washington Post, May 12, 2020, https://www.washingtonpost.com/education/2020/05/12/trump-administration-is-still-garnishing-wages-54000-student-loan-borrowers/.
116. Yu, “Voices of Despair.”
117. U.S. Bureau of Labor Statistics, “Employment Projections,” accessed April 25, 2022, https://www.bls.gov/emp/data/occupational-data.htm.
118. Yu, “Pushed Into Poverty.”
119. Office of Federal Student Aid, “Student Loan Delinquency.”
120. Office of Federal Student Aid, “Getting Out of Default.”
121. Ibid.
122. Hiltonsmith, “Small Loans, Big Risks”; Blagg, “Underwater on Student Debt.”
123. This consequence primarily applies to FFEL loans.
124. Dieterle, Weissmann, and Watson, “How States Use Occupational Licensing to Punish Student Loan Defaults.”
125. M. Mattes and P. Yu, “Inequitable Judgments: Examining Race and Federal Student Loan Collection Lawsuits” (National Consumer Law Center, 2019), https://www.nclc.org/images/pdf/student_loans/report-inequitable-judgments-april2019.pdf.
126. The Pew Charitable Trusts, “How Debt Collectors Are Transforming the Business of State Courts” (2020), https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/how-debt-collectors-are-transforming-the-business-of-state-courts.
127. Mattes and Yu, “Inequitable Judgments.”
128. Ibid.
129. Office of Federal Student Aid, “Collections on Defaulted Loans”; National Association of Student Financial Aid Administrators, “ED Ends Contracts With Student Loan Debt Collection Companies.”
130. Loonin and Yu, “Pounding Student Loan Borrowers.”
131. Loonin and McLaughlin, “The Student Loan Default Trap.”
132. Yu, “Voices of Despair.”
133. U.S. Government Accountability Office, “Social Security Offsets.”
134. The Pew Charitable Trusts, “Borrowers Discuss the Challenges of Student Loan Repayment” (2020), https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/borrowers-discuss-the-challenges-of-student-loan-repayment.
135. U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
136. Ibid.
137. Ibid.
138. U.S. Government Accountability Office, “COVID-19: Significant Improvements Are Needed for Overseeing Relief Funds and Leading Responses to Public Health Emergencies” (2022), https://files.gao.gov/reports/GAO-22-105291/index.html.
139. For more information, see: The Pew Charitable Trusts, “Personalized Interventions Hold Promise for Student Loan Borrowers at Risk of Delinquency, Default” (2021), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2021/01/personalized-interventions-hold-promise-for-student-loan-borrowers-at-risk-of-delinquency-default; The Pew Charitable Trusts, “Student Loan Default Has Serious Financial Consequences”; Mattes and Yu, “Inequitable Judgments”; L. Ahlman, “Casualties of College Debt”; Blagg, “Underwater on Student Debt”; Education Finance Council, “Higher Education Act Recommendations,” https://www.efc.org/page/issues_hea; Loonin and McLaughlin, “The Student Loan Default Trap.”
140. For more information, see: The Pew Charitable Trusts, “Redesigned Income-Driven Repayment Plans”; Student Borrower Protection Center, “Beyond Fresh Start: Addressing the Flaws of the Current Student Loan Collection System” (2022), https://protectborrowers.org/wp-content/uploads/2022/08/Beyond-Fresh-Start.pdf#page=1.
141. The Pew Charitable Trusts, “Redesigned Income-Driven Repayment Plans.”
142. For more information, see: Student Borrower Protection Center, “Beyond Fresh Start”; J.C. Bass, “After President Biden Cancels Student Debt” (Center for American Progress, 2022), https://www.americanprogress.org/article/after-president-biden-cancels-student-debt/.
143. For more information, see: National Consumer Law Center, “Congress Must Provide Relief to Defaulted Student Loan Borrowers” (2020), https://www.nclc.org/images/pdf/student_loans/IB_Defaulted_Borrowers_HEA.pdf; Yu, “Pushed Into Poverty”; Sattelmeyer, “Trapped by Default.”
144. For more information, see: The Legal Aid Foundation of Los Angeles and The National Consumer Law Center, letter; National Consumer Law Center, “Congress Must Provide Relief to Defaulted Student Loan Borrowers”; National Consumer Law Center, “Comments on Reauthorization of the Higher Education Act of 1965 to the Senate Committee on Health, Education, Labor and Pensions” (2018), https://www.studentloanborrowerassistance.org/wp-content/uploads/2018/02/comments-senate-help-re-hea-reauth.pdf.
145. For more information, see: National Consumer Law Center, “Congress Must Provide Relief to Defaulted Student Loan Borrowers”; National Consumer Law Center, “Comments on the Reauthorization of the Higher Education Act of 1965”; C. Campbell, “How Congress Can Fix Student Loan Repayment” (Center for American Progress, 2019), https://www.americanprogress.org/issues/education-postsecondary/reports/2019/03/07/467005/congress-can-fix-student-loan-repayment/; Yu, “Pushed Into Poverty.”
146. For more information, see: The Institute for College Access and Success, “Federal Policymakers Must Act Now to Reform the Student Loan Default System” (2022), https://ticas.org/wp-content/uploads/2022/02/Federal-Policymakers-Must-Act-Now-to-Reform-the-Student-Loan-Default-System.pdf; M. Dimino et al., “Fixing Our Broken Student Loan System” (2021), https://www.thirdway.org/memo/fixing-our-broken-student-loan-system; National Consumer Law Center and The Institute for College Access and Success, “Three Tax Fixes to Improve the Federal Student Aid Program” (2020), https://www.nclc.org/images/pdf/student_loans/Joint_Tax_3_Fixes_Fed_Student_Aid.pdf.
147. For more information, see: The Legal Aid Foundation of Los Angeles and The National Consumer Law Center, letter; Yu, “Pushed Into Poverty.”
148. For more information, see: The Institute for College Access and Success, “Federal Policymakers Must Act Now to Reform the Student Loan Default System”; R. Rush-Marlowe, “Fault Lines in Borrowing: Academic Outcomes of Students in Default” (Association of Community College Trustees, 2020), https://www.acct.org/files/ACCT8152%20%28Fault%20Lines%20in%20Borrowing%29v3.pdf; J.C. Bass, “The Higher Education Act of 1965” (New America, 2019), https://www.newamerica.org/education-policy/reports/higher-education-act-1965/; Dieterle, Weissmann, and Watson, “How States Use Occupational Licensing to Punish Student Loan Defaults”; N. Dalal and J. Thompson, “The Self-Defeating Consequences of Student Loan Default” (The Institute for College Access and Success, 2018), https://ticas.org/content/pub/self-defeating-consequences-student-loan-default.
149. For more information, see: Mattes and Yu, “Inequitable Judgments.”
150. For more information, see: The Institute for College Access and Success, “Federal Policymakers Must Act Now to Reform the Student Loan Default System”; The Legal Aid Foundation of Los Angeles and The National Consumer Law Center, letter; Campbell, “How Congress Can Fix Student Loan Repayment”; Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Loonin and McLaughlin, “The Student Loan Default Trap.”
151. For more information, see: The Institute for College Access and Success, “Federal Policymakers Must Act Now to Reform the Student Loan Default System”; Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Loonin and McLaughlin, “The Student Loan Default Trap.”
152. Borrowers who default multiple times could be provided the same options as those who default for the first time.
153.   Note that the U.S. Department of Education would need to have access to borrowers’ income information in order to automatically enroll them into income-driven plans. Although the Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act would direct the IRS and Department of Education to securely share relevant borrower tax return data, it has not yet been fully implemented and would require borrowers to opt in. 
154. For more information, see: The Institute for College Access and Success, “Federal Policymakers Must Act Now to Reform the Student Loan Default System”; National Consumer Law Center, “Congress Must Provide Relief to Defaulted Student Loan Borrowers”; Loonin and McLaughlin, “The Student Loan Default Trap”; Higher Learning Advocates, “Higher Education Act Recommendations” (2019), https://higherlearningadvocates.org/wp-content/uploads/2019/04/Final-HEA-Recommendations.pdf.
155. The Pew Charitable Trusts, “Redesigned Income-Driven Repayment Plans”; The Legal Aid Foundation of Los Angeles and The National Consumer Law Center, letter; A. Looney, “A Better Way to Provide Relief to Student Loan Borrowers” (Brookings Institution, 2019), https://www.brookings.edu/blog/up-front/2019/04/30/a-better-way-to-provide-relief-to-student-loan-borrowers/.
156. For more information, see: Rush-Marlowe, “Fault Lines in Borrowing”; U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
157. For more information, see: Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016).”
158. For more information, see: The Institute for College Access and Success, “Federal Policymakers Must Act Now to Reform the Student Loan Default System”; The Legal Aid Foundation of Los Angeles and The National Consumer Law Center, letter; National Consumer Law Center, “Congress Must Provide Relief to Defaulted Student Loan Borrowers”; National Consumer Law Center, “Comments on the Reauthorization of the Higher Education Act of 1965”; Sattelmeyer, “Trapped by Default.”
159. For more information, see: Dimino et al., “Fixing Our Broken Student Loan System.”
160. For more information, see: Mattes and Yu, “Inequitable Judgments”; Loonin and McLaughlin, “The Student Loan Default Trap.”
161. For more information, see: U.S. Government Accountability Office, “Social Security Offsets”; Loonin and McLaughlin, “The Student Loan Default Trap.”
162. For more information, see: U.S. Department of the Treasury, “Report on Initial Observations From the Fiscal-Federal Student Aid Pilot.”
163. For more information, see: Consumer Financial Protection Bureau, “Annual Report of the CFPB Student Loan Ombudsman (2016)”; Loonin and Yu, “Pounding Student Loan Borrowers”; Loonin and McLaughlin, “The Student Loan Default Trap”; D. Loonin and J. McLaughlin, “Borrowers on Hold: Student Loan Collection System Needs Massive Improvement” (National Consumer Law Center, 2012), https://www.studentloanborrowerassistance.org/wp-content/uploads/File/borrowers-on-hold.pdf.
164. Office of Federal Student Aid, “Student Loan Delinquency.”
165. The Department of Education declined to provide guidance related to settlements and compromises in its Frequently Asked Questions page on loan servicing and collection, stating that “publicizing this information is not in the best interest of the government as it could enable borrowers to reduce their repayments below the amount they can legitimately afford.” Office of Federal Student Aid, “Getting Out of Default”; Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions.”
166. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults.”
167. National Center for Education Statistics, “Repayment of Student Loans as of 2015 Among 1995-96 and 2003-04 First-Time Beginning Students” (2018), https://nces.ed.gov/pubs2018/2018410.pdf.
168. Office of Federal Student Aid, “Welcome to the Federal Student Aid Data Center,” accessed Aug. 16, 2022, https://studentaid.gov/data-center.
169. Office of Federal Student Aid, “Student Loan Delinquency”; The Pew Charitable Trusts, “Student Loan Default Has Serious Financial Consequences.”
170. Office of Federal Student Aid, “Student Loan Delinquency.”
171. Office of Federal Student Aid, “COVID-19 Relief: Loans in Default,” accessed Aug. 16, 2022, https://studentaid.gov/announcements-events/covid-19/default.
172. Office of Federal Student Aid, “Student Loan Delinquency.”
173. Office of Federal Student Aid, “Income-Driven Repayment Plans,” accessed Aug. 16, 2022, https://studentaid.gov/manage-loans/repayment/plans/income-driven.
174. Office of Federal Student Aid, “Getting Out of Default.”
175. Ibid. Note that, regardless of whether default status is removed from a borrower’s credit history, their record of delinquency will remain.
176. Office of Federal Student Aid, “Student Loan Delinquency.”
177. Office of Federal Student Aid, “Collections on Defaulted Loans”; National Consumer Law Center, “Advocates Applaud Department of Education Decision to Protect CTC Payments in Tax Refunds from Seizure,” February 9, 2022, https://www.nclc.org/media-center/advocates-applaud-department-of-education-decision-to-protect-ctc-payments-in-tax-refunds-from-seizure.html. In February 2022, the Department of Education announced a policy that would protect borrowers from having their Child Tax Credit seized via the offset program.
178. U.S. Bureau of Labor Statistics, “Employment Projections.”
179. Office of Federal Student Aid, “Collections on Defaulted Loans.”
180. Y. Hou et al., “Assessment Frequency and Equity of the Real Property Tax: Latest Evidence From Philadelphia” (working paper, Federal Reserve Bank of Philadelphia, 2021), https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2021/wp21-43.pdf; Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; Yu, “Voices of Despair.”
181. Aros Jr., testimony.
182. Department of the Treasury, Offset of Federal Benefit Payments.
183. National Consumer Law Center, “Student Loan Law Section 9.2.4: Repayment Plan in Lieu of Offset,” accessed Aug. 16, 2022, https://library.nclc.org/book/student-loan-law/93241-repayment-agreements
184. Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions.”
185. Office of Federal Student Aid, “Collections on Defaulted Loans”; Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions”; Yu, “Pushed Into Poverty”; U.S. Government Accountability Office, “Social Security Offsets.”
186. Office of Federal Student Aid, “Collections on Defaulted Loans.”
187. Ibid.
188. Vargas and McCabe, “Philly’s New Property Assessments Are Out.” “Disposable pay” is defined as the income remaining after deductions and other expenses required by law, such as taxes.
189. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults”; U.S. Code § 1673, Restriction on Garnishment; McCrystal, “How Does Philly Assess Property?”; U.S. Department of Labor Wage and Hour Division, “Minimum Wage.”
190. Office of Federal Student Aid, “Collections on Defaulted Loans.”
191. J.F. Ryan Associates Inc., “Audit of the City of Philadelphia Office of Property Assessment Certified 2019 Assessments” (Dec. 3, 2018), http://phlcouncil.com/wp-content/uploads/2019/01/Philadelphia-OPA-Audit-2018-Final-Report.pdf; Office of Federal Student Aid, “Collections on Defaulted Loans.”
192. Mattes and Yu, “Inequitable Judgments”; Student Loan Borrower Assistance, “Lawsuits,” accessed Aug. 16, 2022, https://www.studentloanborrowerassistance.org/collections/consequences-of-default-federal/collection-actions/lawsuits/.
193. Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions”; Mattes and Yu, “Inequitable Judgments”; B. Allyn, “Amid Billions Owed in Student Loans, U.S. Taps Law Firms to Recoup Small Debts From Long Ago,” WHYY, March 28, 2017, https://whyy.org/articles/us-increasingly-hires-private-law-firms-to-pursue-long-overdue-student-loan-payments/.
194. National Consumer Law Center, “Student Loan Law Section 8.5: Defenses to Federal Student Loan Collection Actions,” accessed Aug. 16, 2022, https://library.nclc.org/book/student-loan-law/851-general
195. Mattes and Yu, “Inequitable Judgments.”
196. Ibid.; L. McCrystal, “Tax Bills Set to Increase—Again—for Homeowners as Philly Releases New Assessments,” The Philadelphia Inquirer, April 11, 2019, https://www.inquirer.com/news/philadelphia/tax-increase-property-assessment-philadelphia-real-estate-opa--20190411.html; International Association of Assessing Officers, “Standard on Ratio Studies” (2013), https://www.iaao.org/media/standards/Standard_on_Ratio_Studies.pdf; Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions”; Office of Federal Student Aid, “Getting Out of Default.”
197. J. Darcus, “Student Loan Repayment Rights: Consumer Debt Advice from NCLC,” National Consumer Law Center, Aug. 2, 2018, https://library.nclc.org/student-loan-repayment-rights-consumer-debt-advice-nclc; J. Silver-Greenberg, S. Cowley, and N. Kitroeff, “When Unpaid Student Loan Bills Mean You Can No Longer Work,” The New York Times, Nov. 18, 2017, https://www.nytimes.com/2017/11/18/business/student-loans-licenses.html; National Consumer Law Center, “State Laws and Statutes That Suspend Professional Licenses and Certificates,” accessed Aug. 16, 2022, https://www.jwj.org/wp-content/uploads/2015/02/State-Laws-and-Statutes-That-Suspend-Professional-Licenses-and-Certificates.pdf.
198. Dieterle, Weissmann, and Watson, “How States Use Occupational Licensing to Punish Student Loan Defaults.”
199. H.R. 1372: Protecting JOBs Act,  (2021), https://www.congress.gov/bill/117th-congress/house-bill/1372; S. Najmabadi, “Most Texas Workers Will No Longer Lose Their Occupational License If They Default on Student Loans,” The Texas Tribune, June 7, 2019, https://www.texastribune.org/2019/06/07/texas-student-loan-default-wont-cost-workers-their-occupational-licens/.
200. C. Wilson, “Delinquent Consumer Debt Leading Cause for Security Clearance Denials,” InsideARM, Sept. 3, 2010, https://www.insidearm.com/news/00027585-delinquent-consumer-debt-leading-cause-fo/; Consumer Financial Protection Bureau, “Office of Servicemember Affairs Annual Report” (2020), https://files.consumerfinance.gov/f/documents/cfpb_osa_annual-report_2018.pdf; M. Stratford, “Veterans Groups Concerned With DeVos ‘Borrower Defense’ Plan,” Politico, Aug. 9, 2018, https://www.politico.com/newsletters/morning-education/2018/08/09/veterans-groups-concerned-with-devos-borrower-defense-plan-311194.
201. For example, collection fees are capped by law at 18.5% for borrowers seeking to exit default through consolidation (20 U.S.C. § 1078©(6)(B)). The Department of Education allows lower amounts to be charged: the lesser of $150 or 18.5% of combined principal and interest for borrowers consolidating into an income-driven repayment plan, or 2.8% of combined principal and interest for borrowers making three consecutive monthly payments. Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions.”
202. Ibid.
203. This information applies to Department of Education-held loans.
204. Office of Federal Student Aid, “Loan Servicing and Collection Frequently Asked Questions.”
205. Delisle, Cooper, and Christensen, “Federal Student Loan Defaults.”
206. Ibid.
207. Office of Federal Student Aid, “COVID-19 Relief: Loans in Default”; Congressional Research Service, “Federal Student Loan Debt Relief in the Context of COVID-19” (2021), https://files.eric.ed.gov/fulltext/ED610724.pdf