FROM BEADSIE WOO, DIRECTOR OF FAMILY AND YOUTH FINANCIAL STABILITY, THE ANNIE E. CASEY FOUNDATION
AFN BOARD MEMBER
APRIL 2026

AFN Short Take is a blog series highlighting insights and perspectives from recent AFN programming events.

Nearly 43 million Americans hold federal student loan debt. Close to eight million of them are already in default or in the process of defaulting, and millions more are on the edge of defaulting. For funders focused on economic mobility, family financial security or community wealth building, the student loan default crisis is already showing up in the communities we serve and intersecting with the outcomes we care most about. Understanding it and acting on it belong squarely in our portfolios.

That was the message at the heart of a recent Asset Funders Network webinar, Before the Cliff: Why Student Loan Default Belongs in Your Economic Mobility Portfolio, convened with support from the Annie E. Casey Foundation. Kyra Taylor, staff attorney at the National Consumer Law Center (NCLC) and Sarah Sattelmeyer, project director of education, opportunity and mobility at New America walked funders through the mechanics of default, the populations most at risk and the urgent need for philanthropic engagement.

A Family Financial Security Crisis

When a borrower goes into default, the consequences extend well beyond their own balance sheet. A portion of wages can be garnished, entire tax refunds seized and a portion of Social Security benefits offset. Only $750 per month of a Social Security check is fully protected by law — a threshold not updated for inflation. And, because there is no statute of limitations on collections, student loan debt — unlike most other forms of debt — can truly follow a person for life.

For funders, the most important lens is the ripple effect on families. A seized tax refund may have been the money needed for housing, medical expenses or child care. For families counting on the Child Tax Credit or Earned Income Tax Credit, a seized refund means those benefits disappear, too. A borrower in default typically cannot qualify for a federally backed mortgage or a Small Business Administration (SBA) loan. And because default blocks access to federal student aid, borrowers who took time off from school cannot receive support like Pell Grants or student loans to return to finish their degree.

Student loan default intersects directly with the outcomes most asset funders care about: housing stability, workforce participation, small business access and family financial wellness. Families navigate all of these at once, and the penalties make it harder for people to meet basic, everyday needs and find a path back into repayment.

Why This Moment Matters

At approximately $1.7 trillion, federal student loan debt is the second-largest consumer debt category in the country, trailing only mortgages. Close to a quarter of the portfolio is behind on their payments or in default on their loans, and another quarter is in forbearance or deferment, potentially delaying a reckoning that for many borrowers is still coming.

As described by Sattelmeyer, payments were paused from March 2020 through fall 2023. When they resumed, many borrowers still weren’t ready or did not realize they needed to make payments or know who their loan servicer was to discuss repayment options. Missed payments began hitting credit reports in early 2025; Treasury offsets of tax refunds for those in default began in May 2025, and wage garnishment was set to resume in early 2026 before a pause on involuntary collections was announced on all of the Department’s collection powers with no end date.

“The negative consequences of non-payment began last year and are continuing into this year — even during the current involuntary collections pause — for those who miss payments, or for those who were already in default.Sarah Sattelmeyer, New America

Three groups are in or could be approaching crisis and need additional assistance: approximately eight million borrowers are in default, five million of whom have been in default since before the pandemic; more than three million borrowers are significantly behind on payments; and with the recent court ruling ending the Saving on a Valuable Education (SAVE) repayment plan, more than seven million borrowers will need to transfer out of the SAVE forbearance into another plan in the coming months.

And yet this period also presents an opening. The current pause on involuntary collections creates an opportunity to help borrowers exit default and to get ahead of changes to the default system before full collections resume.

When Repayment Options Are Difficult to Navigate

Nearly nine months will pass before a federal student loan officially goes into default, and income-driven repayment plans, the ability to pause payments and cancellation programs exist to help. So why are so many people in default? Taylor’s answer was direct: the student loan system is a complex puzzle of policy.

To access the right repayment plan, a borrower needs to know their loan type, when they borrowed and which eligibility rules apply — information a borrower must search for on their account on StudentAid.gov or with their servicer. As Taylor put it, the last ten years have seen time-limited programs and eligibility shifts — in other words, what counted one year no longer counts the next year. Opt-in paperwork necessary for relief programs can be complex and confusing. When borrowers turn to servicers for guidance, misunderstanding and misinformation can occur, and in the student loan world, one bad decision can change your options for a decade or longer.

Who Student Loan Debt Affects

A persistent misconception is that student loan debt belongs to young professionals with graduate degrees and high-earning careers ahead. The reality is starkly different. More than half of federal student loan borrowers owe $20,000 or less. Many never completed a degree — some borrowed for certificate programs; others took time off when caregiving, health challenges or job loss intervened. Recent data from the Consumer Financial Protection Bureau (CFPB) identified roughly 10,000 borrowers who are over the age of 90. This is not just a young person’s problem.

The borrowers most at risk of default, and least served by the existing system, include:

  • borrowers of color, particularly Black borrowers, who borrow more than any other demographic of students and are more likely to struggle paying down their debt, even after completing a degree due to disparities in earnings and wealth;
  • those who did not complete a degree or credential;
  • older borrowers, the fastest-growing demographic in the portfolio;
  • low-income, low-wealth students who are also navigating other forms of financial insecurity; and
  • veterans, student parents, first-generation students and those who attended for-profit institutions.

Beyond demographics, there is a critical shortage of help beyond student loan servicers who do not provide personal or broader financial guidance. A handful of states have built statewide networks; California’s Student Loan Empowerment Network and New York’s Education Debt Consumer Assistance Program (EDCAP) are models. But in much of the country, borrowers navigating default on their student loans have few or no options to turn to for help.

What Funders Can Do Right Now

Most borrowers can get their loans back into good standing through rehabilitation, consolidation or discharge programs. The pathways exist. What is missing is support around the infrastructure to help borrowers find and use them and a deeper understanding of who is at risk and how to effectively reach them. That gap is where philanthropy can step in.

For funders who don’t consider themselves part of the education sector, the shift in perspective is simple: people in default are no longer in higher education. They are in our communities – working or seeking work and engaging with nonprofits and community-based organizations that focus on housing, workforce development, health and family financial stability. Student loan default is a common thread that runs through all of these areas.

Philanthropy can make a real difference across several dimensions:

  • Fund outreach, education and direct services. Community organizations, financial counselors and trusted messengers need support to help borrowers understand their options, especially in the context of broader family finances. Organizations like the Student Debt Crisis Center and the National Foundation for Credit Counseling are already doing this work and need partners. NCLC’s free training series for financial counselors, supported by the Annie E. Casey Foundation, is one immediate resource funders can direct their grantees toward.
  • Invest in legal aid for student loan work. Legal aid organizations that open their doors to student loan cases are immediately inundated. Funding this capacity is high-impact, high-need and currently deeply underfunded.
  • Support research and policy advocacy. Understanding who is being harmed by new laws and regulations and lifting those findings into the policy conversation is essential. Those working in this capacity, especially on the default system, need philanthropic partners.
  • Ensure your grantees are prepared. Even organizations that don’t provide student loan counseling interact with borrowers every day. Financial threshold training so staff can spot warning signs and connect people to resources can make an enormous difference.

“If we had more education about student loan rights and resources, suddenly we would start realizing that our neighbors and the people that we interact with on a day-to-day basis are likely struggling with this — and that they have options. Kyra Taylor, National Consumer Law Center

Ripple Effects Across Communities and Systems

Student debt impacts the areas of housing, employment, health, and family wealth. It reduces a person’s chances for economic mobility and financial security, including basic needs like medical care, food, and housing. Its consequences can even show up in the futures of borrowers’ children as student debt can limit parents’ ability to save, invest and spend on their children’s education and opportunities, which can limit children’s financial stability and upward mobility. It also increases the likelihood that children will rely on loans themselves, contributing to ongoing financial challenges across generations.

With collections eventually resuming and new laws taking effect, some organizations doing this work are overwhelmed and under-resourced. The infrastructure borrowers depend on needs additional support and resources. That is exactly where philanthropy can do its best work.

For additional insights, watch the webinar recording and explore AFN’s resources on post-secondary education without debt and asset preservation on the AFN website.