6. Falling behind on student loan repayments has a lasting impact on students. Default can wreck their credit and make them ineligible to receive additional student aid. Even worse, students can end up with garnished wages or even have their tax refund withheld. Students who are struggling now will have an even tougher hill to climb as their debt compounds with possible collection fees, increasing interest or being sued for the entire amount at once. 7. The suspension may have created a false sense of security. As you look down the road, diligence needs to be taken to prepare for long-term repayment issues. • The 2019 CDR was established on March 20, 2020 when the office of Federal Student Aid began providing the following temporary relief on ED-owned federal student loans: suspension of loan payments, stopped collections on defaulted loans, and a 0% interest rate. All loans were brought current and a school’s 2019 CDR was established. • The 2020, 2021 and 2022 CDR was impacted in March 2020 when the CARES Act went into effect and all borrowers were brought current. When loans resume repayment in October 2023, they cannot default within the cohort year, thus the 2020, 2021, and 2022 CDRs will be zero. • For 2023, the “on-ramp” transition period means no delinquencies will be recorded until October 1, 2024. Only students who enter repayment between October 1-5, 2024 and never make a payment could default and impact the school’s CDR.
• In 2024, two-thirds of the cohort year remains to determine the CDR.
• 2025 will be the first cohort year not impacted by the cares since 2018.
While suspending student loans was a relief to many students and schools alike, returning to repayment in a much different atmosphere than when it was suspended serves many challenges in understanding the impact and how to return to successful repayment habits. Servicing Failures & Program Disruptions Highlight Risks to CDR A recent CFPB report* detailed the systemic issues plaguing student loan servicing and the consequences for borrowers. Servicing errors, mismanagement, and program disruptions have caused significant harm, resulting in borrowers being unable to access affordable repayment plans, missed benefits, and even defaults. These issues present serious challenges for schools striving to manage their CDR. Key Findings and Implications Servicing Failures: Administrative errors — such as misapplied payments and inaccurate information about forgiveness programs—have disproportionately impacted borrowers. These issues not only affect individual repayment success but also contribute to schools’ rising CDRs. Program Disruptions: Transitioning servicing companies and changing policies have led to borrower confusion. The report highlights how borrowers often struggle to navigate these disruptions, which increases the likelihood of delinquency or default.
* (2024, Nov. 15) CFPB Report Details Student Borrower Harms from Servicing Failures and Program Disruptions , Consumerfinance.gov
6
Powered by FlippingBook