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New America Foundation has released a report, “In Default and Left Behind,” based on focus group interviews with 50 borrowers who went into default on their student loans before the pandemic.
“Before they defaulted, many did not receive the benefits promised by higher education and were poorly served by a complex student loan repayment system, experiences that contributed to ongoing financial instability,” said the report.
The report discusses reasons they went into default, and the difficulties they face because they’re in default.
“When they entered default, focus group participants lost track of their loans as their accounts changed hands multiple times, and they heard from a variety of entities charged with explaining a complicated system,” the report said. “For some, their paychecks turned up short, and their tax refunds were unexpectedly garnished. When it was time to move, credit score damage often meant they could not live in the neighborhoods they wanted to or easily access funds to buy a more reliable car. In effect, the default process was clawing back money from the same low-income families that government safety net programs were simultaneously working to lift out of poverty.”
The report added, “Many struggled to identify and use available loan discharge options and other pathways to exit default, and others got stuck because they had no affordable way out. Interactions with servicers, collectors, and the [Education] department left many borrowers confused and without adequate aid and information.”
