Trapped by Default
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Approximately 7.5 million Americans are in default on their federal student loans today. Borrowers in default can be charged high collection fees and have portions of their wages, tax refunds, and federal benefits withheld—including Social Security, the Earned Income Tax Credit, and the Child Tax Credit, says this report from New America on why borrowers default, how being in default affects borrowers’ economic security, and opportunities for reform.

Default not only causes family financial insecurity, but it also contributes to the racial wealth gap and related economic disparities. Those mostly likely to default—Black, Hispanic and Latina/o, and Native American borrowers; low-income and low-wealth families; first generation college students; and those who leave school without completing a degree or credential, among others—have also been hit hardest by the COVID-19 pandemic.

But even in the best of times, these communities are often the least able to afford the penalties that come with default due to a history of structural discrimination and racism in our systems of education and justice, the labor market, and mechanisms through which families build and access wealth.

You can view the report here.