The Trump Administration inherited a massive student loan crisis when 35 million federal borrowers resumed payments in October 2024 after a four-and-a-half-year pause. The problem, beyond the financial, is that many borrowers seem to have convinced themselves, not entirely in bad faith, that their loans were simply forgiven or that they wouldn't have to pay them back after all. The Biden Administration's chaotic, one-step-forward-two-steps-back handling of the student loan system has left it in shambles, with delinquencies skyrocketing and a wave of defaults looming on the horizon.

Which is why we wanted to zoom in on this report by Preston Cooper, for CERN, the Conservative Education Research Network, affiliated with AEI. We already mentioned this report, but we think this is a very important sleeper issue, so we wanted to spend a little more time on it.

First, let's rewind. Why are we in such a mess? What began as a six-month payment pause in March 2020, justified by the economic emergency of Covid, stretched into years of extensions without congressional approval. The Biden Administration repeatedly promised that each extension would be the last, but consistently extended the pause at the last minute, leaving borrowers confused and disengaged. During this time, the administration actively dismantled the loan servicing infrastructure, with several servicers ending their contracts and debt collection companies being terminated. Most problematically, the administration spent years pursuing illegal loan forgiveness schemes worth hundreds of billions of dollars instead of preparing borrowers for the inevitable return to repayment.

The consequences of this mismanagement are now evident. As of March 2025, only 35% of eligible borrowers are making on-time payments, while over 7.4 million borrowers are delinquent on their debts. Another 10 million remain in forbearance due to ongoing legal battles over the SAVE repayment plan. Many borrowers experienced shocking drops in their credit scores—sometimes by 100 points or more—when consequences finally resumed in January 2025, with many reporting they were unaware payments had actually resumed.

The Trump Administration has taken several steps to address the crisis, including launching a robust communications campaign to inform borrowers about their obligations and restarting involuntary collections on defaulted loans after a five-year hiatus. The Treasury Offset Program resumed in May 2025, allowing the government to seize tax refunds and Social Security payments from defaulted borrowers, with wage garnishment set to follow. Education Secretary Linda McMahon has been clear in her messaging: borrowers must restart payments immediately.

Restarting collections was necessary for the student loan program to function properly, as unsecured student loans require consequences for default to maintain the system's integrity. However, significant challenges remain. If current delinquent borrowers don't resume payments, the report warns that 12 million borrowers—one-third of all those not in school—could be in default by year's end. The report emphasizes the need for "sustained effort from the executive and legislative branches to restore the student loan program to health," though it doesn't detail specific structural reforms beyond blocking future forgiveness schemes.

It's just a tough scene all-around with few good options. Forgiveness has to stop, and the moral hazard has to be stopped. At the same time, the problems aren't just political (though that shouldn't be ignored either). There will be an economic impact, in the short run from the cut to disposable income of college graduates (America's best-earning demographic) and in the long run, depending on how this situation is handled, a wave of millions of bankruptcies will certainly reverberate. There is also, for lack of a better term, a "moral" element. Yes, moral hazard and imprudence should not be rewarded; at the same time, a lot of people believed in good faith that repayment had stopped; it's easy to lecture them or feel morally superior about this but Americans lead busy and complicated lives and aren't, as a rule, very financially literate, and now they, perhaps irrationally but in a way that's humanly understandable, feel screwed by the system. In a democracy, governance is also about understanding voters' human concerns, even if those may not be fully rational. Cooper's report is long on complaints and short on proposals; at first we thought about criticizing this; but we are now at the same place he landed: despairing, and with no good ideas on how to move forward.

Policy News You Need To Know

#Veterans — This is something we come back to regularly: RAND publishes some of the best work out there on veterans' issues. After Memorial Day, take the time to read their issue briefing on the rising rate of veteran suicides.

#Natalism #FamilyPolicy — The great Lyman Stone of the Institute for Family Studies has published a new report (PDF) whose subtitle is a lot more telling and interesting than the title: "Pronatal Policy Works, and America Can’t Afford to Forego It." This is a drum that, of course, Stone has been beating for many years. Using statistical techniques, Lyman shows, insofar as such a thing is possible, that, in his own words, "Financial incentives—such as child tax credits—can indeed boost fertility by a demographically significant degree, and have done so in many contexts around the world."

SEE ALSO: Our interview with Stone on this and every other topic natalism-related (YouTube, Spotify, Apple Podcasts)

#Natalism — Speaking of, the great demographic researcher Daniel Hess, who tweets as @MoreBirths, has informed us of a funny, but also dead serious, innovation: a new metric he calls "BMI", or the "Baby-Money Index," which considers "both income and fertility" to rank countries. BMI "combines national income (GNI) and fertility rate (TFR) to produce a better measure of a nation's true health." Why is this necessary? "Consider Japan. Japan sits near the top of the HDI rankings in terms of life expectancy, education and income. But actually, Japan hasn't grown in three decades. Japan is a nation in decline because of low birthrates!" Statistics such as GDP and HDI don't capture this. Hence, BMI. The formula is "GNI x TFR squared." Why? Because "Economy = Money × Children², or for short, E = mc²." You may think this is all a bit silly, but, as Hess argues, "the Baby Money Index or something similar would nudge countries toward true, long-term thriving by urging both economic and family success, both of which are crucial in the long term." Anyway, who's the highest scorer? Unsurprisingly, Israel.

#Hahvahd — The Trump Administration has now said it intends to cancel all Federal funds directed at Harvard.

#Hahvahd — Speaking of, at CIS, Dan Cadman asks whether the District Court's injunction stopping DHS's denial of Harvard's ability to issue student visas will stick. We thought this point was particularly astute: "Even assuming Harvard continues to issue I-20s by the boatload to new prospective students to present to a consular officer abroad, they will undoubtedly be denied. And there is a long body of law and court precedent which puts consular denials out of reach of this, or any, district court judge. He has no power to oblige the federal government to issue a visa to a foreigner abroad."

#Hahvahd — Speaking of speaking of, from the NYT comes this very telling headline: "In Attacks on Harvard, Chinese See Yet Another Reason to Write Off the U.S." Whether such a headline and article tells us more about the real world, or about the New York Times is left as an exercise to the reader.

#Greenery — At the Cato@Liberty blog (old hands will remember the Olden Times when they spelled it that way, when adding the @ symbol to stuff was still vaguely hip), Adam N. Michel and Joshua Loucks vent disapproval of one of the weakest point of the House bill: it's slow-rolling phaseout (probably intended to never happen) of the very bad IRA tax credits.

#DEI — Charles Lehman of the Manhattan Institute points us to an interesting policy shift (or seeming policy shift anyway) from the Trump EEOC: under previous Republican Administrations, the EEOC "tried to focus on individual instances of blatant discrimination"; meanwhile the Trump EEOC is saying (correctly, in our view): "yes, systematic discrimination is real and a problem." As EEOC Acting Chair Andrea Lucas said, "Without confirming or denying the existence of any particular charge, believe me—[the EEOC] is dead serious about remedying this harm."

#Immigration — The Times (of London, that is) has done a profile on "the migrants who choose to self-deport from America." As they write, "a growing number of people are leaving voluntarily rather than wait to be thrown out in President Trump's crackdown, or risk prison in El Salvador."

#EverythingBagelLiberalism — Great little gem of a post from Alex Tabarrok at Marginal Revolution, looking at the State of Illinois' affordable housing program, and finding that "Only 3% of scorecard points are awarded based on project cost." Instead, programs have to satisfy a slew of requirements, most of them having nothing to do with making housing affordable. "Thus, rather than affordable housing what is actually being incentivized is some combination of: Racial equity goals, Environmental sustainability, Community development, Supporting vulnerable populations, Universal design for accessibility (7 points for going beyond code)." As Tabarrok writes, "this is what Ezra Klein calls Everything Bagel Liberalism." Indeed.