I would like to believe that most Americans would be against this system that’s actively ruining the financial futures of so many, even those who harangue debtors over the “personal responsibility” aspect of borrowing for one’s education. It’s super easy to say, “Pay your loans, you deadbeat. Don’t make it my problem.” I understand that sentiment. But the reality is that many borrowers can’t. Student loan payments can take up a large portion of a borrower’s income, and nearly 7 million borrowers are in default after not being able to make payments for over nine months.
There’s a reason only 18% of borrowers have continued to make payments on their 0% interest loans since the COVID-19 moratorium began in 2020. Gwen Carney, a 61-year-old grandmother from Oklahoma, told Insider in January that the moratorium has given her extra income and allowed her to focus her financial attention on other bills and living necessities that were previously occupied by loan repayment.
Borrowers are trapped in a system with an incredibly tight margin for error, and harsh penalties for mistakes. If student loan repayment was easy to navigate, and if the terms were fair, then perhaps there wouldn't be a crisis. Instead, borrowers are tethered to their debt and can’t see the light at the end of the tunnel.
Borrowers don’t want or need sympathy (which is hard to come by, anyway): They are looking for help. And although President Biden’s actions as a senator helped lay the foundation for the student debt crisis, his administration is working to make up for the mistakes of the past.
The Biden administration has already forgiven $17 billion of debt for more than 700,000 “students with disabilities, public service workers, and students who were defrauded by their schools.” Additionally, Biden has extended the student loan payment and interest moratorium for a fourth time, allowing borrowers to continue to recover from the financial strain of the COVID-19 pandemic—a welcome reprieve for borrowers holding federal student loans. And on April 19, the administration announced more reforms, this time targeting longtime income-based repayment (IBR) program failures, caused by servicers’ bad acts and even worse record-keeping. According to the Department of Education, the latest reforms will bring “40,000 borrowers immediate forgiveness, and bring at least 3.6 million borrowers closer to relief by at least three years through income-driven repayments.” Alongside these one-time bits of relief, permanent improvements to IBR programs aim to ensure that all payments borrowers make will actually count toward their forgiveness.
These reforms are a good start and a great statement of intent, but there’s more to be done. We need to get to a place where student loan payments don’t leave borrowers feeling trapped by their loans. Holding debt and not being able to pay it off doesn’t only cause financial trouble.
“The burden of debt also contributes to acute mental health issues, including prolonged stress, anxiety, and feelings of shame,” writes J Geiman, for the Center of Law and Social Policy, adding that “a 2021 mental health survey indicated 1 in 14 borrowers experienced suicidal ideation in response to the financial stress of student loans. Among borrowers who were unemployed or making less than $50,000 per year, this rate jumped to 1 in 8.”
If the Biden administration doesn’t change the circumstances that led to this crisis, future borrowers are going to be facing the same crisis we are now. To say college is expensive these days is an understatement, and scholarships, grants, and work-study programs are in limited supply and rarely cover the total cost of a college education. It’s also incredibly unlikely that the Free Application for Federal Student Aid (FAFSA) will give students enough “free” aid like Pell grants (especially if they’re middle-class). Instead, the government is more than willing to grant students access to federally backed student loans.
“The availability of student loans makes families less sensitive to the cost [of the education] and colleges less likely to compete on that cost,” said Generation Debt author Anya Kamenetz in CNN’s 2014 Ivory Tower documentary. As states have divested from higher education, colleges haven’t had to become innovative when it comes to financial aid packages because they’ve been able to transfer the cost to students and readily available student loans.
Blanket forgiveness or targeted forgiveness are two options that would help correct the years of government inaction that led to the student loan debt crisis. While Biden campaigned on the cancellation of $10,000 of federally held debt per borrower, Sens. Elizabeth Warren and Chuck Schumer have pushed the president to cancel up to $50,000, and were recently joined in their fight by the Rev. Sen. Raphael Warnock.
As of this writing, new rumors of an executive order—for means-tested forgiveness of $10,000 per borrower—are swirling, but no legislation has reached Biden’s desk, nor has he used executive authority to cancel any debt per borrower.
The COVID-19 moratorium has shown that the government can go a significant amount of time without receiving loan payments, so extending grace periods for borrowers who have left or finished school would give future borrowers and current students much more time to prepare themselves for their new life of payments. Why is there such a rush to force new graduates (or dropouts) into repayment six months after their last class? It takes the average borrower 20 years to pay off their loans, so it’s not like borrowers are going anywhere. And with 11% of new graduates defaulting in the first 12 months of repayment, it’s clear that borrowers need more time to get their post-college lives situated.
Many borrowers (like myself) try to find quick solutions to combat fast-growing loan balances, and they end up taking jobs outside their expertise, or that don’t even require a college degree. I ended up working a number of different side jobs before I was selected for this (paid) fellowship with Daily Kos, but I still work a 9-to-5 to keep loan servicers off my back. These “solutions'' are unlikely to ever help borrowers land a position in their chosen field of study, leaving them in jobs that lead to wondering why they even went to college in the first place.
Borrowers who don’t qualify for deferment could put their loans into forbearance, but that’s a really bad idea. When I didn’t have a job after graduating, I put my student loans into forbearance so I wouldn’t have to deal with the penalties of missing payments. The principal amount grew and grew while I struggled to find a paying job in my field. Extending the post-college grace period would give borrowers an ample amount of time to prepare themselves for the long-term commitment of loan payments and save them from the hell that is forbearance. Making this time low- to no-interest could help loan balances from spiraling out of control in the earliest years of repayment.
Another option is to delay loan payments entirely, until the borrower's income has reached a certain threshold, as seen with Australia's Higher Education Loan Programme. This approach ensures borrowers are financially stable enough to begin making payments while still actively participating in the economy. Loan payments are capped at a certain percentage of a borrower's income (never surpassing a maximum of 10%). This would help borrowers whose annual income is less than the sum total of their student loans, and those who can’t afford to allot a large portion of their income to repaying their loans. It would free up income and allow borrowers to spend, invest, or even save it.
Another important feature of the Australian student loan system is that student loans are interest-free. Though a program like this would require a significant financial investment by the government, abolishing interest rates would give debtors additional relief and an actual chance to “pay what they’ve borrowed,” a common complaint among those opposed to student debt relief.
Alexandria Mavin, a 32-year-old property manager, told Insider that she paid off $70,000 of her initial $117,000 debt. Yet, because of high interest rates, she still owes $98,000. With the elimination of capitalized interest—which could be applied retroactively—costs of a financed education would no longer balloon to something much larger and impossible to tackle.
The goal of interest is to make a profit from an initial investment, so why is interest part of any federally backed student loan? There’s no need for the government to make money off of loans if the goal is to have an educated citizenry who can participate in the nation’s economy. If it turns out that borrowers need a little more incentive to repay their loans, perhaps we could make interest-free payments only available to those who don’t miss payments for a certain amount of time—with a path for those who stumble to find their way back to that benefit.
Yet another option that could help with this far-reaching crisis? Reform bankruptcy laws to allow borrowers to discharge student debt. It doesn’t make sense to saddle borrowers with a lifetime of additional penalties for missing payments when it’s clear they already can’t pay—and the penalties for borrowers who can’t make payments are as steep as they are numerous.
Because of an obscure law from the 1980s, missing a payment automatically triggers loan servicers to report the delinquency to credit bureaus. That report will automatically knock down a credit score, making it harder for borrowers to buy a car, rent an apartment, secure a mortgage, find a job, or start a family.
Additionally, once debtors are in default, their wages and tax returns can (and will) be garnished by the government, leaving already cash-strapped borrowers with even less money to sustain their households—at any age. Over 100,000 borrowers had Social Security benefits garnished, according to a 2015 Government Accountability Office report, because they defaulted on payments. Student loan debt is forever.
Additionally, most borrowers cannot discharge the debt through bankruptcy. With rare exceptions, they’re stuck with that debt for life. It’s a no-win policy, though Sens. Dick Durbin and John Cornyn have introduced bipartisan legislation to allow for that option after 10 years.
Generally, student loans have long been positioned as a good investment in one’s future: You put yourself in some debt on the front end to get yourself a degree and a good-paying job that’ll make paying it back a breeze. The problem is that many borrowers (myself included) don’t understand the kind of financial commitment they’re making when they’re signing those first promissory notes at 17 or 18 years old. Nor do they understand what the repayment process will look like if they struggle to get a job after leaving college, when low- to no-interest payments under IBR lead to skyrocketing balances as interest piles up.
Higher education is meant to be a pathway to higher-paying jobs, financial security, and general upward mobility. The American Dream indoctrinates us with the idea that if you work hard enough, you can achieve anything. But that isn’t true: A college degree doesn’t guarantee anything. With wages stagnating and the educational requirements for jobs increasing, the prospects for graduates are less certain than they were previously.
Universities should be required to teach prospective students about the commitment they’re making. “The financial aid office is still in the best position to see trouble coming and do something to stop it,” argued Ron Lieber in 2010. All too often, school advisers turn a blind eye to deteriorating situations regarding student debt simply so those situations don’t personally affect them, and any action might hinder their employer’s chance to continue making money.
No matter how much debt the Biden administration decides to forgive, it won’t cure the illness—it will just treat the symptoms. The problem will still remain that college is expensive and will keep getting more expensive. At the rate the cost of higher education is growing, fewer people will be attending university and those that do will find themselves taking on obscene amounts of debt.
The government should provide guidance for states to reinvest in their colleges and universities, and pressure them to do it. I’m not arguing (here, anyway) that college should be free, though that’s a great idea for multiple reasons, but there needs to be a recalibration on how states fund public higher education, even as the federal government does nothing to rein in the costs. Without addressing these costs, despite any relief that’s coming, more and more students seeking a better life will have to take out bigger and bigger loans that’ll weigh them down for their foreseeable future.
There’s no reason university presidents should be making millions of dollars on the backs of their students. Nor should Louisiana State University football coach Brian Kelly be making $9.5 million a year as the highest-paid state employee—especially when he hasn’t won anything in his career.
If this unsympathetic and dispassionate system isn’t reformed, tens of millions of Americans will continue to struggle to pay off their student loans and remain spectators in the economy, rather than active participants. Education should foster social mobility and the possibility of equality, but right now it is reinforcing inequalities. Women and people of color have struggled with this crisis the most, and will continue to if no action is taken.
We’ve already watched nearly 30 years of students be anchored down by educational debt, so let’s not let this happen to any more of them.
This story was produced through the Daily Kos Emerging Fellows (DKEF) Program. Read more about DKEF (and meet other Emerging Fellows) here.