JUANA SUMMERS, HOST:
The federal student loan system is a mess right now. Eight million borrowers are in limbo, waiting for the courts to decide if their repayment plan is legal. And many of the borrowers who aren't in limbo and who should be making monthly payments are not. All while the office that oversees the student loan program has had its staff cut by half. NPR's Cory Turner is here in the studio to help us unpack all of this. Hey there.
CORY TURNER, BYLINE: Hey, Juana.
SUMMERS: OK, Cory, a lot to talk about here. But let's just start with those borrowers who are sort of in limbo, waiting for the courts. What's the latest there?
TURNER: Yeah. These are the folks who enrolled in President Biden's Saving on a Valuable Education Plan. It's called SAVE. The terms of the plan are so generous, Republicans sued. The case is now in the 8th Circuit, where a federal judge called for a pause on the whole thing.
And these 8 million borrowers, while they're not required to make payments right now, they're kind of stuck. A court freeze also shut down enrollment for the past month in all repayment plans that really flex with a borrower's income, and that got ugly when some borrowers suddenly saw their monthly payments inexplicably skyrocket. Yesterday, though, one bit of good news - the Education Department reopened enrollment in those other, more affordable plans.
SUMMERS: OK, so what happens if the courts kill the SAVE Plan?
TURNER: Yeah, so that is not entirely clear. Borrowers could be put into a different income-driven plan that was around before SAVE or maybe some new plan. But whatever the plan, it likely will not be as generous as SAVE, which means borrowers could eventually see their monthly payments increase. It's also worth saying at this point, Juana, that SAVE is in real trouble. Here's Jason Delisle at the Urban Institute.
JASON DELISLE: I mean, there isn't going to be a SAVE Plan. That's either going down under legislation or going to go down by the judge's ruling.
TURNER: Yeah, so Delisle told me, if the courts don't strike it down, congressional Republicans are planning to kill SAVE in the big reconciliation bill they're working on right now because, Juana, they can use the savings from killing SAVE to help pay for the extension of the Trump tax cuts.
SUMMERS: Got it. Well, here's another question. We said in the intro that there are a whole lot of borrowers who should be making payments right now and they are not. Tell us why.
TURNER: Yeah. So NPR obtained internal Education Department data that shows, as of earlier this month, 9 million borrowers were late on their payments, and more than 4 million of those were between 91 and 150 days late. The reasons are complicated. When the pandemic paused student loan payments, you remember, defaults also stopped, so there were no consequences to not paying your student loans. But many borrowers don't realize those days are over. Last October, the default clock started ticking again, and here's what borrowers need to know.
So after 90 days without a payment, your credit takes a big hit. And after 270 days, the government can start going after your paycheck, your tax refunds, Social Security. And keep in mind, the federal office in charge of managing all of this $1.6 trillion student loan portfolio just had its staff cut in half, and multiple experts told me borrowers are going to have an even harder time getting their questions answered. Here's Michele Zampini with the Institute for College Access & Success.
MICHELE ZAMPINI: There is no possible way for this to function properly, for borrowers to receive repayment assistance or help from servicers. I mean, that's so far gone.
SUMMERS: OK, and all of that that you've been talking about, that's all happening as President Trump announced last week that he was moving student loans out of the Education Department immediately. What's the latest there, Cory?
TURNER: Right. He said student loans would be moving to the U.S. Small Business Administration and that they were ready. The problem there is twofold. On the same day of that announcement, the SBA also said it was cutting its own staff by more than 40%, so it is not clear how it could be any better positioned to manage a loan portfolio with 43 million borrowers. The other problem here is the loan program being at the Education Department is baked into federal law, which only Congress can change.
I asked for clarity. The Small Business Administration sent me a statement saying the SBA is working closely with the White House, Department of Education and Congress to finalize this plan. And I think, Juana, the - and Congress - there is really key because if that happens, Democrats would almost certainly be able to block a move like this.
SUMMERS: NPR's Cory Turner, thank you.
TURNER: You're welcome. Transcript provided by NPR, Copyright NPR.
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