Robbie Sequeira, stateline.org
Over the past few months, Selina Damien’s phone rang out from the hook with some confused and uneasy questions. “What kind of loan is this?” “Am I the default?” “Does the government really take my wages?”
“Sometimes, they don’t know where to start,” said Damian, California’s student loan ombuds person service.
“I’m talking to borrowers from new borrowers, from all ages with borrowers who are 80, 90,” she said.
The federal government resumed its default loan collection last month. State student loan ombuds persons such as Damien have become some of the only sources of contact for worrying borrowers who have lost conflicting information entanglements at the federal level about their loan status and repayment options.
The U.S. Department of Education began collecting default student loans in May for the first time since the beginning of the Covid-19 pandemic.
Federal student loans issued by the U.S. Department of Education include fixed interest rates, set-up repayment plans, and borrower protection. The private servicer handles billing, repayment plans registration, and defaults.
Data from the U.S. Department of Education shows that over 5 million borrowers are delinquent, with about 25% of their federal student loan portfolios (about 25% of their federal student loan portfolios) at risk of default.
The state cannot cancel its obligations, but it registers and oversees servicers operating in the state, operates the ombuds office, fine-tunes tax rules, and provides outreach or limited grants.
If borrowers default, the state will likely feel economic consequences. They may lose tax revenue as a home buying stall. If borrowers need to resort to them, they will end up paying more for Medicaid and social services. And students with loan debt may be reluctant to take low-paid public sector jobs, leading to a shortage of staffing at state agencies.
The borrower is considered delinquent after failing to make a claim, register a repayment plan, and pay a payment to the service company that handles the default.
Established under the California Bill of Rights for Student Borrowers, Damien’s office began as a statutory narrow role, but now serves as a “Student Loan 101” workshop, a hub for escalating complaints to federal agencies.
Approximately 16 states and the District of Columbia follow suit to create an ombuds office to guide borrowers through confused documents and misinformation. Damien believes these ombuds offices should be in every state. Because borrowers across the country are likely to have similar questions and most help at the federal level.
“If there’s no Ambes Person or if there’s no mere person at the state level who can educate borrowers, that’s going to make a difference,” Damien told Stateline. “These borrowers are trying to pay, but the system is broken. Other financial products don’t work this way.”
Student loans became a major issue during last year’s election race, with President Joe Biden being blocked by the U.S. Supreme Court in an effort to provide relief to 40 million Americans. On the day of decline, his administration allowed around 150,000 borrowers to lend under the previous program.
However, President Donald Trump has opposed most loan waiver programs, and in May the U.S. Education issued a letter to higher education institutions with “dear colleagues,” reminding them of their legal obligation to help former students understand repayment liability and access support.
Some conservative economists say federal loan exemptions and financial aid hurt all students and provide incentives to universities to raise tuition fees and lower their own institutional aid.
Winston Berkman Breen, legal director at the Student Borrower Protection Center, a nonprofit that aims to protect borrowers and improve repayment systems, said more than two million borrowers are stuck in a backlog of raw applications for income-driven repayments.
Other borrowers are seeking help from federal agencies just to find that staff in the U.S. education department, including the servicer oversight team, have been fired as the Trump administration is working to completely dismantle the department.
“We were expected to pay it back,” Berkman Breen said. “But there was also the hope that people would have access to affordable plans. That promise has collapsed.”
Currently, the state has three key tools to address student loan debt, Berkman Breen said: Legal oversight by sueing to support or challenge federal government policies. We will provide direct outreach to civil servants to access programs similar to public service loan forgiveness.
He said 19 states require registration of companies that serve student loans. It is also consistent with federal policies to exempt loan balances from state income taxes.
“Can’t wait for Washington.”
Connecticut Rep. Eleni Cabros DeGro, a Democrat, called student debt “tears into the economy” and said the state couldn’t afford to wait for legislative sessions.
“(Student debt) stops people from buying houses, starting families and fully participating in the economy,” she told Stateline. “It hurts us as a city and a nation. We can’t wait for Washington to understand that.”
Last year, Connecticut created a bipartisan reimbursement program that offers up to $20,000 to local university graduates who make payments and complete community services. The state has distributed more than $2 million so far.
Kavros DeGraw hopes the program will serve as a model and has already spoken with lawmakers from other states about perhaps developing their own version.
“These were people who had already paid,” Cabros DeGroe said. “That just makes sense. It’s something other states can explore this session, and I think it would provide a huge amount of relief.”
Lawmakers from other states are also considering student loan laws. This year, New Jersey introduced a bill to register educational lenders and cap interest rates. Lawmakers from New Mexico, New York and North Carolina are proposing borrower rights bills. Arizona has a registration bill for private servicers. None of these measures have made progress so far.
More than 20 states have enacted laws in recent years that expand loan waiver, repayment programs and servicer oversight, according to a national meeting of state legislatures.
Also, several states have invested directly in forgiveness of loans alongside the workforce. Georgia has expanded its cancelable loan programme for services to cover dental students working in rural areas. Idaho created loan repayment incentives for rural nurses. Kentucky is currently offering a $5,000 salary to attract new teachers. Maryland has allowed Anne Arundel County to launch a local forgiveness program for public school educators.
repayment
The stress of student loans is not evenly distributed. Seven states with Republican-controlled legislatures report arrears rates above 30% among borrowers needed to make payments.
Mississippi leads the country with a conditional delinquency rate of nearly 45%. This means that the borrowers to pay are late. It is located just in front of Alabama, West Virginia, Kentucky, Oklahoma, Oklahoma, Arkansas and Louisiana, according to recent data from the Federal Reserve Bank of New York.
In contrast, Illinois, Massachusetts, Connecticut, Vermont and New Hampshire maintain their late rates below 15%.
Experts say the crack reflects deeper whole-body differences, including median median median income for higher delinquent states and the greater share of students attending for-profit organizations and leaving the university without a degree.
The state also promotes the federal Public Service Loan Remission Program, established in 2007, providing support to public service professionals. New Mexico has an outreach campaign that includes future teachers and healthcare workers. Maine is providing guidance to public advocates on how to leverage the public service loan forgiveness program and promote state tax credits related to marketing sites to seduce new residents.
“The state can regulate and enforce it, but it cannot solve the structural issues in how repayments are managed,” says Michele Zampini, senior director of university affordability at the University Access & Success Institute, a research organization that advocates for students. “They’re helping around the edges, but the core system is still broken.”
A November report from the Consumer Finance Protection Agency found that at least 3.9 million borrowers received misleading or inaccurate bills from the service company.
“The repayment system is not a good place to provide the services and repayment options that borrowers are legally entitled,” Zampini said.
A student loan borrower survey conducted between October 2023 and January 2024 found that 61% of borrowers who received debt relief change their beneficial lives faster than other methods. However, borrowers’ perceptions remain dangerously low. Nearly 42% of federal borrowers had only standard repayment plans, while 31% of those who didn’t know other options, such as income-based plans.
In California, the majority of Damian’s work over the past few months has been to make borrowers accessible to existing forgiveness programs.
Meanwhile, new federal policy proposals could completely restructure repayments. One big, beautiful bill law supported by Trump integrates existing IDR plans into a single tiered structure, with low-income borrowers paying flat monthly fees and donating 8% of their income. The bill also proposes extending the standard repayment terms to 30 years. It can cause concern, delay forgiveness, and inflate the total interest costs.
The bill passes a US home and is pending in the Senate.
“Incentives to raise prices”
Andrew Gillen, a Cato Institute researcher who testified recently before Congress, argues that meaningful revisions must address incentives that drive rising tuition fees. That is, federal aid is directly linked to university sticker prices.
“The relationship between rising tuition fees and increased aid drives the Bennett hypothesis, in the form of loans, where federal student aid could lead to higher tuition fees at universities,” Gillen said in an interview. “If we instead use median attendance costs to calculate aid eligibility, we’ll remove the incentives from universities that try to raise prices just to get more aid.”
Even without agreeing to blanket forgiveness, experts agree to a rational bipartisan step for smaller repayments, stronger servicer surveillance, and targeting borrowers with the greatest needs.
“We don’t want people to default. We don’t want to pay too much for people who just graduated from school. That should be a bipartisan starting point,” Zampini said.
©2025 States Newsroom. Go to stateline.org. Distributed by Tribune Content Agency, LLC.
Original issue: June 11, 2025, 2:17pm EDT
