Student Loan Borrowers Owe $1.6 Trillion. Nearly Half Aren’t Paying.

After an unprecedented three-year timeout on federal student loan payments because of the pandemic, millions of borrowers began repaying their debt when billing resumed late last year. But nearly as many have not.

That reality, along with court decisions that regularly upend the rules, has complicated the government’s efforts to restart its system for collecting the $1.6 trillion it is owed.

At the end of March, six months after the hiatus ended, nearly 20 million borrowers were making their payments as scheduled. But almost 19 million were not, leaving their accounts delinquent, in default or still on pause, according to the latest Education Department data.

“The nonpayment rate really is emblematic of a system that’s not doing its job,” said Persis Yu, the managing counsel for the Student Borrower Protection Center, an advocacy group.

Seven million borrowers with federally managed loans were at least 30 days overdue on their payments at the end of 2023. That’s the highest delinquency rate since 2016, as far back as the department’s public records go. Because of a policy adopted by the Biden administration, those borrowers will face no penalties for their nonpayment until October at the earliest.

Millions more had their accounts frozen through deferment or forbearance (which allows borrowers to temporarily stop making payments), and nearly six million borrowers remain mired in defaults that began before the pandemic.

The reasons borrowers aren’t paying are varied. Some say they can’t afford it, while others are tangled in bureaucratic snafus. Many people are taking advantage of an “on-ramp” period that lasts through September, during which late payments will not be reported to credit bureaus and borrowers will not be placed into default, though interest will continue to accrue.

When President Biden ended the moratorium that began in March 2020 under President Donald J. Trump, he pledged to fix key parts of the long-troubled federal loan program. While the Supreme Court overturned Mr. Biden’s most far-reaching policy — forgiving at least $10,000 in debt for each of millions of borrowers — his administration resurrected other pathways for eliminating debt.

Mr. Trump’s Education Department stymied relief programs for government and nonprofit workers, permanently disabled borrowers, and people defrauded by for-profit schools. Under Mr. Biden, the agency revamped and expanded those and other initiatives and used them to cancel $167 billion owed by nearly five million people.

Mr. Biden also created a new repayment program, SAVE, which slashed many borrowers’ payments or reduced them to zero for millions of low-wage workers. Consumer advocates praised those moves as vital to ensuring that borrowers’ bills are manageable.

But the plethora of changes to repayment rules, and a barrage of lawsuits from Republican-led states attacking them, have worsened the already challenging task of getting more than 40 million people back on a payment track. The Education Department and its five loan servicers are struggling to adapt their systems and guide borrowers through repayment options that sometimes change overnight.

Last week, federal judges in Kansas and Missouri temporarily blocked elements of the SAVE program, ruling in favor of states that contested the president’s authority to impose such generous terms without congressional approval. In the Kansas suit, the states called the president’s debt relief maneuvers “a rushed product to evasively do what the Supreme Court already told defendants they cannot do.”

But on Sunday, the U.S. Court of Appeals for the 10th Circuit temporarily reversed the Kansas decision, clearing the way for the department to proceed with planned payment reductions this month for millions of borrowers.

Travis Wattles, 39, has had his account in forbearance since the payment pause ended in the fall because his servicer, Aidvantage, has not been able to determine what his monthly bill should be. (Aidvantage declined to comment and referred questions to the Education Department.)

Mr. Wattles, who works in automotive product marketing, spent several years overseas. During that time, his earnings were below the limit for the foreign income exclusion (a tax break that shelters some income), so he had no taxable income and owed nothing for his student loan debt.

But Mr. Wattles, who moved near Nashville in early 2020, now makes a six-figure salary. He enrolled in the SAVE plan in August, and has twice sent paperwork to Aidvantage to have his payment recalculated based on his current earnings.

“They keep putting me back into forbearance because they can’t figure it out,” he said. “I don’t want that. I don’t mind making a payment; I understand I took out the loan.”

Karlyn Granger, a 36-year-old graphic designer, received her master’s degree in 2019. When the pandemic freed her of the obligation to pay her federal loans, she got married, bought a house in Atlanta and had a baby. The costs of caring for her family consume most of her paycheck and “feel much more present and dire” than her loan, she said.

A deluge of emails from Aidvantage has spurred her efforts to figure out which payment plan is best for her. But the choices confuse her: Should she try to keep her monthly bill as low as possible, or prioritize paying more to reduce what she owes in interest?

The shifting legal landscape has amplified her uncertainty. The SAVE plan, for example, waives unpaid interest for those who keep up with their monthly payments and forgives any debt remaining after 20 years. But those benefits may vanish if legal challenges to the plan succeed. And the Internal Revenue Service typically treats forgiven debts as income. Ms. Granger fears making a decision that might eventually stick her with an enormous tax bill.

“I’m just kind of in analysis paralysis, where I don’t do anything,” she said.

The Education Department anticipated that millions of borrowers would need extra time, help and nudging. There’s no historical parallel for pausing the entire loan system for years. But when natural disasters have occurred — which affected borrowers can use as grounds to temporarily suspend their payments — “roughly a third of borrowers missed their payments in the first months after payments resumed,” two senior officials wrote in an April blog post. “Their rates of payment recovered gradually over a two- to three-year period.”

For loan servicers, alarm bells start going off when a borrower is more than 90 days overdue, said Scott Buchanan, the executive director of the Student Loan Servicing Alliance. That’s the point at which they normally file a negative credit report. But through September, the servicers have instead been instructed to place those borrowers into forbearance.

That complicates the data. With so many borrowers being automatically routed into forbearance, it’s hard to separate those who can afford to pay but are choosing not to from those who are genuinely struggling.

“For some time, we’re going to have this group of borrowers who will see, ‘I went delinquent and nothing happened,’ so they think, ‘Why am I making a payment?’” Mr. Buchanan said. “That was always the risk of the on-ramp. You want to encourage people to make payments. If you self-cure for them, that doesn’t encourage payments.”

Mr. Biden frequently casts his approach to student debt as a signature accomplishment. “My administration has taken the most significant action to provide student debt relief ever in the history of this country,” he said in April. “This relief can be life changing.”

And for millions of people, it has been, despite the rockiness and legal turmoil of the past year.

Clayton Lundgren, 25, earned a master’s degree in engineering physics in 2021 — then moved to Los Angeles to work as a self-employed content creator. Had the Supreme Court allowed Mr. Biden’s mass-debt cancellation program to stand, nearly half the $21,000 that Mr. Lundgren owes would have vanished.

But because of the SAVE program, which exempts income of up to 225 percent of the federal poverty line, Mr. Lundgren owes nothing on his monthly loan bill. That helps him afford his rent and other living expenses. “It gives some breathing room,” he said.

And because SAVE prevents interest from accruing, Mr. Lundgren’s balance isn’t growing. That’s a sea change from how federal student loans used to operate: Previously, millions of borrowers on income-driven plans made payments every month but saw their tabs keep rising, because their payments weren’t enough to cover even the interest on their debts.

Mr. Lundgren said he was grateful for SAVE, but also felt a bit whiplashed by the loan system’s gyrations.

“I am just resigned to the fact that there is almost certainly no reality where the socially just thing happens, which would be loan forgiveness and the institution of universally affordable public college,” he said.

Representative Virginia Foxx of North Carolina, a Republican and the chairwoman of the House Committee on Education and the Workforce, praised the court rulings against the SAVE plan.

Mr. Biden “has opted to give away taxpayer money and illegally rewrite loan contracts,” she said. “It’s a blatant attempt to buy votes from college graduates on the backs of the working class.”