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Over the past few months, Celina Damian鈥檚 phone has been ringing off the hook with one bewildered, anxious question after another: 鈥淲hat kind of loan is this?鈥� 鈥淎m I in default?鈥� 鈥淲ill the government really take my wages?鈥�

鈥淪ometimes they just don鈥檛 know where to start,鈥� said Damian, California鈥檚 student loan servicing ombudsperson.

鈥淚鈥檓 talking to borrowers from all ages, from new borrowers to 鈥� I have 80-, 90-year-old borrowers,鈥� she said.

The federal government last month restarted collections on defaulted loans. State student loan ombudspersons such as Damian have become some of the only sources of contact for worried borrowers lost in a tangle of conflicting information at the federal level about their loan status and repayment options.

The U.S. Department of Education began collecting on defaulted student loans in May for the first time since the beginning of the COVID-19 pandemic in March 2020.

Federal student loans issued by the U.S. Department of Education come with . Private servicers handle billing, repayment-plan enrollments and defaults.

More than 5 million borrowers are in delinquency, and nearly 10 million 鈥� about 25% of the federal student loan portfolio 鈥� are at risk of default within months, according to data from the U.S. Department of Education.

States can鈥檛 cancel that debt, but they do register and oversee servicers operating in their states, run ombuds offices, tweak tax rules and offer outreach or limited grants 鈥� actions aimed at reducing defaults and the economic fallout.

When borrowers default, states will likely feel the economic impact. They might lose tax revenue as homebuying stalls. They could end up paying more for Medicaid and social services if borrowers need to rely on them. And students with loan debt may be reluctant to go into lower-paying public-sector work, leading to staffing shortages at state agencies.

A borrower is considered delinquent after missing a payment to the servicing companies that handle billing, repayment plan enrollments, and defaults.

Damian鈥檚 office, established under California鈥檚 Student Borrower Bill of Rights, began as a narrow statutory role but now serves as a hub for outreach, 鈥淪tudent Loan 101鈥� workshops and escalated complaints to federal agencies.

Roughly plus the District of Columbia have followed suit, creating ombuds offices to guide borrowers through confusing paperwork and misinformation. Damian believes these ombuds offices should be in every state, as borrowers across the country will likely have similar questions and little help at the federal level.

鈥淚f you don鈥檛 have an ombudsperson or even just a person at the state level who can educate borrowers, that will make a difference,鈥� Damian told Stateline. 鈥淭hese borrowers are trying to pay, but the system is broken. No other financial product works this way.鈥�

Student loans became a key issue during last year鈥檚 election race, with President Joe Biden blocked by the U.S. Supreme Court in his effort to offer relief to 40 million Americans. In its waning days, his administration did forgive loans for some 150,000 borrowers under previous programs.

But President Donald Trump opposes most loan forgiveness programs, and聽in May, the U.S. Education Department issued a , reminding them of their legal obligations to help former students understand repayment responsibilities and access support.

Some conservative economists聽 that federal loan forgiveness and financial aid hurt all students, offering colleges an incentive to raise tuition or lower their own institutional aid.

Winston Berkman-Breen, the legal director at the Student Borrower Protection Center, a nonprofit aimed at protecting borrowers and improving the repayment system, said that more than 2 million borrowers are stuck in a backlog of for ( 鈥� calculated pay structures meant to keep payments affordable based on a borrower鈥檚 income.

Other borrowers have called federal agencies for help only to find that U.S. Education Department staff, , have been laid off as the Trump administration works toward dismantling the department entirely.

鈥淭here was an expectation to repay,鈥� Berkman-Breen said. 鈥淏ut there was also an expectation that people would have access to affordable plans. That promise has broken down.鈥�

States now have three primary tools to address student loan debt, Berkman-Breen said: enforcement actions to protect consumers, such as the against servicer Navient; legal oversight by suing to uphold or challenge federal policy; and direct outreach to help public servants access Public Service Loan Forgiveness and similar programs.

Nineteen states now require registration for companies that service student loans, he said. And more than a dozen states align with federal policy to exempt forgiven loan balances from state income taxes.

鈥楥an鈥檛 wait for Washington鈥�

Connecticut state Rep. Eleni Kavros DeGraw, a Democrat, calls student debt 鈥渁 drag on the economy,鈥� and said states can鈥檛 afford to wait for Congress 鈥� mired in partisan gridlock over student loan forgiveness 鈥� to find common ground.

鈥淸Student debt] is stopping people from buying homes, starting families and fully participating in the economy,鈥� she told Stateline. 鈥淭hat hurts us as a state, as a city, and we can鈥檛 wait for Washington to figure it out.鈥�

Last year, Connecticut created a bipartisan that provides up to $20,000 for graduates of local colleges who make payments and complete community service. The state has distributed more than $2 million so far.

Kavros DeGraw hopes the program can serve as a model, and has already talked with lawmakers in other states on possibly developing their own versions of it.

鈥淭hese were people who were already paying,鈥� Kavros DeGraw said. 鈥淚t just made sense. I think it鈥檚 something that other states could explore this session, and it would provide an immense deal of relief.鈥�

Lawmakers in other states also have considered student loan legislation. This year, New Jersey introduced bills to and cap interest rates. Lawmakers in , and have proposed Borrower Bill of Rights legislation. Arizona has a registration bill for private servicers. None of these measures has advanced far.

According to the National Conference of State Legislatures, more than 20 states have enacted laws expanding loan forgiveness, repayment programs and servicer oversight in recent years.

Several states are also investing directly in workforce-aligned loan forgiveness: Georgia expanded its service-cancelable loan to cover dental students working in rural areas. Idaho created a loan repayment for rural nurses. Kentucky now offers $5,000 to attract new teachers. Maryland authorized Anne Arundel County to launch a local program for public school educators.

Repayment

Student loan stress is not . Seven states, all with Republican鈥恈ontrolled legislatures, report delinquency rates above 30% among borrowers required to make payments.

Mississippi leads the nation with a conditional delinquency rate of nearly 45% 鈥� meaning borrowers who should be making payments are late. That鈥檚 just ahead of Alabama, West Virginia, Kentucky, Oklahoma, Arkansas and Louisiana, all of which have rates above 31%, according to recent data from the Federal Reserve Bank of New York.

By contrast, Illinois, Massachusetts, Connecticut, Vermont and New Hampshire maintain delinquency rates below 15%.

Experts say this chasm reflects deeper systemic differences, such as lower median incomes in higher delinquency states, along with weaker consumer protections and a higher share of students attending for-profit institutions or leaving college without a degree.

States also have promoted the federal Public Service Loan Forgiveness program, established in 2007, that offers help to public service professionals. New Mexico has an outreach campaign that includes and health care workers. Maine has provided to public defenders on how they can take advantage of the Public Service Loan Forgiveness Program and touts a related state tax credit on a marketing to lure new residents.

鈥淪tates can regulate and enforce, but they can鈥檛 fix the structural problems in how repayment is administered,鈥� said Michele Zampini, senior director of college affordability at The Institute for College Access & Success, a research organization that advocates for students. 鈥淭hey鈥檙e helping around the edges, but the core system is still broken.鈥�

A November from the Consumer Finance Protection Bureau found at least 3.9 million borrowers received misleading or inaccurate bills from servicing companies.

鈥淭he repayment system is not in a good place to provide the services and repayment options borrowers are legally entitled to,鈥� Zampini said.

The Student Loan Borrower Survey, conducted between October 2023 and January 2024, found that 61% of borrowers who received debt relief made a beneficial life change earlier than they otherwise could have. Yet borrower awareness remains dangerously low: Nearly 42% of federal borrowers have only been on the standard repayment plan, and 31% of those didn鈥檛 know other options, such as an income-based plan, existed.

In California, a major part of Damian鈥檚 job in the past few months has been to help borrowers access existing forgiveness programs.

Meanwhile, new federal policy proposals could reshape repayment entirely. The Trump-backed would consolidate existing IDR plans into a single tiered structure, with lower-income borrowers paying flat monthly rates and higher earners contributing 8% of their income. The bill also proposes extending standard repayment terms to 30 years 鈥� raising concerns it could delay forgiveness and inflate total interest costs.

The bill passed the U.S. House and is pending in the Senate.

鈥業ncentive to hike prices鈥�

Andrew Gillen, a Cato Institute research fellow who recently testified before Congress, argues that any meaningful fix must address the incentives driving rising tuition 鈥� namely, federal aid being tied directly to college sticker prices.

鈥淭he link between rising tuition and increasing aid is what drives the Bennett Hypothesis, where federal student aid, in the form of loans, can lead to higher tuition costs at colleges and universities,鈥� Gillen said in an interview. 鈥淚f we instead use the median cost of attendance to calculate aid eligibility, we remove colleges鈥� incentive to hike prices just to capture more aid.鈥�

Even without agreement on blanket forgiveness, experts agree on smaller bipartisan steps: streamlined repayment, stronger servicer oversight and targeted help for borrowers with the greatest need.

鈥淲e don鈥檛 want people defaulting. We don鈥檛 want payments that are too high for people just out of school. That should be the bipartisan starting point,鈥� Zampini said.

is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Stateline maintains editorial independence. Contact Editor Scott S. Greenberger for questions: [email protected].

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