Student loan repayments are back. As of October 1, as many as 40 million borrowers resumed repaying their student loans. The ramp-up of the restart of repayment has been far from smooth, adding to borrowers’ confusion and further eroding trust in the system. 

Earlier this summer WGU Labs and Savi surveyed borrowers about how they’re navigating repayment, among other factors, and published our analysis in “Left Adrift: The State of Student Loan Repayment.” We found borrowers, especially those with less than a bachelor’s degree are unaware of all their repayment options, which could lead to them paying more than they need to or defaulting on their loans. These borrowers are also much less likely to trust their loan servicers than those with a bachelor’s degree or higher. It is up to loan servicers, universities, employers, and anyone invested in America’s borrowers' financial well-being to ensure everyone has access to clear information and guidance.

Borrowers are Losing Trust in the System 

We found that less than half of borrowers without a bachelor’s degree (46%) find their servicer very or extremely trustworthy. By contrast 60% of borrowers with a bachelor’s degree reported the same. 

This lack of trust in federal student loan services, and the loan repayment industry generally, has been building for a long time. For decades, the student loan industry has been plagued by bad actors including loan servicers giving bad information to borrowers, fraudulent colleges that encourage students to rack up large debt for degrees with little value or no degree at all, and even federal programs that left borrowers holding the bag for small clerical missteps. While loan repayment pauses during the COVID-19 pandemic provided relief, about 44% of borrowers had their loans transitioned to new servicers during this time. According to our findings, borrowers with less than a bachelor’s degree were more than twice as likely to say they don’t know their servicer, compared to borrowers with a bachelor’s degree or higher.

Then in 2022, the Biden administration proposed blanket student loan forgiveness, which swiftly met legal challenges. The administration pressed on and opened applications for loan forgiveness. But mounting pressure from legal proceedings abruptly closed the process. These topsy-turvy events were followed by millions of students being falsely notified that their debt was wiped clean. When the Supreme Court finally deemed the loan forgiveness program unconstitutional in July, borrowers were weary, perplexed, and short on time to prepare for repayments to restart. 

As the federal government reinstituted loan repayments, the system has continued to sow mistrust. So far, the process has been plagued by administrative errors, such as borrowers seeing a zero balance in their accounts. The Office of Federal Aid is understaffed and overwhelmed too. The lack of support could lead to borrower delinquency and default, especially for individuals with lower incomes. We found that borrowers without a bachelor’s degree are already almost three times more likely to be in default, compared to people who have a bachelor’s degree. 

Loan servicers are the gateway to repayment options and solutions for getting out of default. Any disparities in borrowers’ awareness of, outreach to, and trust in the system is a serious concern. Rebuilding trust, through clear information and easy-to-follow processes, will help ensure all borrowers have equal access to repayment options and flexibility in the student loan repayment system.

Confusion About Common Repayment Plans

Student borrowers have a range of repayment options at their disposal. However, determining which one is right for any particular borrower is confusing. Many borrowers remain in the standard repayment plan that they automatically fall into, even when a non-standard, or alternative, repayment plan will not only help them better manage repayment but also may be required to be eligible for loan forgiveness.  

Among the alternative choices for borrowers, the most common are a graduated repayment plan, an extended plan, and income-driven plans. The graduated plan allows borrowers to make low monthly payments that incrementally rise every two years, ultimately leading to loan payoff within 10 years. Alternatively, the extended repayment plan allows borrowers to make monthly payments spanning 10 to 30 years. For those experiencing financial hardship, income-driven repayment plans offer relief by aligning monthly payments with income and family size, potentially reducing payments to $0 for low-income or unemployed borrowers. Additionally, there are two loan forgiveness plans specifically for teachers working in low-income districts and individuals working in nonprofit or government organizations. 

Our research found that one in four borrowers without a bachelor’s degree weren’t fully aware of all their repayment options and one in seven weren’t aware of any of their options. This lack of awareness can lead borrowers to choose options that cost them more than necessary. Moreover, confusion about repayment options among borrowers without bachelor’s degrees puts those who are already financially vulnerable more at risk of falling behind on payments or defaulting.

The latest efforts by the Biden administration were not taken into consideration during the survey. But the evolving conversation including the SAVE plan, changes to debt relief plans, and changes to policy through complex negotiations that will ideally help many borrowers are so far muddying the waters further.  

Exactly which repayment or forgiveness option is available and what will provide the greatest benefit is a complicated calculation based on income, loan balances, expected future earnings, household size, and more. Moreover, efforts to help borrowers navigate an ocean of debt fall short of addressing the root cause of the issue: the cost of college. Borrowers deserve better. They need clearer guidance, greater transparency, and effective policy at every stage of the higher education process, from understanding the total cost and borrowing the right amount to repaying their loans. With comprehensive support for paying for college, students will be able to take advantage of all the benefits higher education provides them.   

Learn more about the state of student loan repayment — download Left Adrift: The State of Student Loan Repayment.