Better Understanding of Student Loan Repayment System Can Improve Borrowers Financial Realities

Anyone who has ever tried to make sense of the federal student loan repayment system knows how critical a borrower-friendly, accessible system is to long-term financial success. For years, borrowers have faced a repayment process that is often confusing, rigid, and disconnected from their ability to pay. Even those who work hard to stay on track with repayment find themselves overwhelmed by complex paperwork and confusing options. And for many—especially those with low incomes or unstable employment, and those who did not finish their degree—the consequences of falling behind are severe and long-lasting.

The Pew Charitable Trusts began its work on student loan repayment in 2018, looking to address barriers that made it difficult for borrowers to repay their loans despite existing policies enacted  to help them succeed. By examining how borrowers experience the system, identifying pain points, and analyzing outcomes over time, Pew’s student loan initiative has sought to inform a more effective and fair approach to repayment that would reduce defaults, improve financial stability, help borrowers manage debt, and enable the government to recoup taxpayer dollars. Through its research, policy engagement, and collaboration with government agencies, servicers, academics, and advocates, this project has worked to make the federal student loan repayment system more responsive, fair, and manageable for borrowers.

As this initiative winds down, we’re reflecting on what the project and its partners accomplished and what those changes mean for millions of Americans navigating the higher education system.

Research and policy that puts borrowers first

Income-driven repayment (IDR) plans are designed to adjust monthly loan payments based on a borrower’s income and family size. In theory, these plans are a vital tool for making repayment manageable, but in practice, many borrowers struggle to enroll or stay enrolled. Pew’s research revealed the real-world barriers borrowers faced, from burdensome paperwork requirements to administrative delays that left people without affordable payment options.

These findings helped inform several key policy changes. The federal government adopted secure data-sharing between the IRS and Department of Education through the Fostering Undergraduate Talent by Unlocking Resources for Education Act of 2019, which streamlined the IDR application and helped increase the number of borrowers who could choose income repayment options. New IDR plans created by both the Biden and Trump administrations  eliminated the harmful practice of negative amortization, ensuring that borrowers’ balances no longer grow when they’re making consistent payments. In 2022, policymakers eliminated most instances of interest capitalization—when unpaid interest is added to a borrower’s principal balance—helping to reduce balance growth over time.

The project has also shed light on how borrowers navigate default, which has long been one of the most damaging outcomes of the student loan system. Consequences of default can include wage garnishment, tax refund and Social Security benefit seizures, damaged credit, and the loss of eligibility for additional federal aid. Pew’s work highlighted the difficulties borrowers face when trying to exit default, the high volume of borrowers who default once (34%) and then default again (66%), and the way the collections system can trap people in cycles of debt without offering a meaningful path back into repayment. The project urged the federal government to tackle the problem through automatic IDR enrollment for delinquent borrowers, more supportive collections processes, and better borrower outreach.

Pew’s research also included a groundbreaking survey on veterans who borrowed to finance their education, a report offering insights into the significant repayment barriers that Black and Hispanic or Latino borrowers face, and timely surveys analyzing the repayment status of student borrowers during and following the pandemic-era payment and interest pause. This research delivered a clearer picture of the significant impact that education debt has on different groups of people, helping policymakers and the federal government better understand the wide-ranging landscape of student borrowers.

Looking ahead

Recognizing that Pew's work in this area would eventually conclude, the project identified legacy partners who could carry forward its efforts. That included convening ideologically diverse coalitions, co-funding a working group led by the New America Foundation to find common, nonpartisan ground on default reform, and commissioning a behavioral economics study with Duke University and the Education Debt Consumer Assistance Program to explore how better communication can help struggling borrowers more effectively access repayment options.

Pew's student loan initiative work has helped call attention to the problems within the repayment system, encouraged policies that improve borrower and taxpayer outcomes, and ensured that policy decisions were grounded in how people experience debt.

Regan Fitzgerald and Ama Takyi-Laryea are senior managers and Phillip Oliff is a senior officer with The Pew Charitable Trusts’ student loan initiative.