Savanna Hoffman
Student loan debt is a significant issue in the US, with 42.7 million borrowers owing more than $1.6 trillion in student debt. Many borrowers struggle to repay their loans due to high monthly payments, accruing interest, and a lack of financial stability. While there are options for deferment or forbearance, these are temporary solutions that can result in accruing interest and negatively impact credit scores. Additionally, existing loan forgiveness programs have been criticised for not adequately addressing the socioeconomic disparities between racial groups. As a result, many borrowers face long-term challenges in repaying their student loans, leading to potential financial and legal consequences.
| Characteristics | Values |
|---|---|
| Number of borrowers who owe student debt | 42.7 million |
| Amount owed in student debt | $1.6 trillion |
| Number of borrowers who have not made a monthly payment in over 360 days | 5 million |
| Number of borrowers in late-stage delinquency | 4 million |
| Number of borrowers who could be in default in a few months | 10 million |
| Percentage of borrowers in repayment and current on their student loans | 38% |
| Percentage of federal student loan portfolio that will be in default | 25% |
| Percentage of Black households that make less than white households at any educational level beyond a bachelor’s degree | $25,000 less |
| Income threshold for people filing taxes individually to receive financial relief under Biden's plan | $125,000 |
| Income threshold for married couples to receive financial relief under Biden's plan | $250,000 |
| Number of days before a loan payment is officially delinquent | 90 days |
| Number of days before a loan payment is officially in default | 270 days |
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What You'll Learn
Student loan forgiveness plans are not equitable for Black Americans
Black borrowers are also more likely to struggle financially due to their student loan debt, with monthly payments of $258. Four years after graduation, Black students owe an average of 188% more than what they borrowed. This is because Black borrowers earn less money, with white degree holders making 25.5% more in median annual income. The Black-white wage gap is widening, and Black households' indebtedness is increasing. Student loan debt can delay or change decisions on important issues such as where to live, what type of work to do, starting a family, and purchasing a home.
While student loan forgiveness plans, such as the Biden Administration's plan to cancel $10,000 in student debt for borrowers earning $125,000 or less per year, are a step in the right direction, they do not go far enough to address the disparities faced by Black borrowers. According to Amalea Smirniotopoulos, the Biden plan "leaves many Black graduates burdened with substantial debt". To ensure equity, more holistic solutions are needed to increase access to affordable higher education for Black students and address the longstanding structural barriers that prevent Black people from accessing equal employment opportunities and building generational wealth.
Full student debt cancellation has been proposed as a solution to address the racial wealth divide. Analysts and scholars argue that cancelling student debt will boost the economy and improve the labour market for Black workers. It would also allow Black Americans to participate more strongly in the economy and make investments that would otherwise be hindered by debt. While there are disagreements on the long-term impact of student loan forgiveness on racial wealth gaps, it is clear that the current system disproportionately harms Black borrowers and that more comprehensive solutions are needed to advance economic justice.
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The moratorium on student loan payments during the pandemic
The COVID-19 pandemic has had a significant impact on the global economy, and many people have struggled to keep up with their financial obligations, including student loan payments. In recognition of this, governments and financial institutions around the world implemented a range of measures to provide relief to borrowers. One notable initiative was the moratorium on student loan payments, which allowed borrowers to temporarily pause their loan repayments without facing penalties or negative consequences to their credit score.
In the Philippines, Senator Lito Lapid proposed a bill to temporarily suspend student loan payments during times of disasters and emergencies, such as the COVID-19 pandemic. This bill aimed to ease the financial burden on families affected by such events, allowing them to focus on essential daily expenses. The bill was designed to cover loans administered by Higher Education Institutions (HEIs) or the Unified Student Financial Assistance System for Tertiary Education (UniFAST) Board, among other government agencies.
In the United States, the federal government also took steps to assist student loan borrowers during the pandemic. The Trump administration initially suspended federal student loan payments in March 2020, extending the moratorium through January 2021. Subsequently, the Biden administration extended the moratorium multiple times, with payments on federal student loans paused until at least May 1, 2022. This relief measure provided much-needed financial flexibility to millions of Americans struggling with the economic fallout of the pandemic.
While the moratorium offered a safety net for borrowers, it also sparked discussions about the potential drawbacks of pausing loan repayments. Some financial experts advised borrowers to continue making payments during the moratorium, arguing that it would improve their credit scores and reduce their overall debt burden in the long term. Additionally, concerns were raised about the potential accumulation of interest during the moratorium period, which could increase the total cost of the loan. Nevertheless, the moratorium on student loan payments during the pandemic provided critical support to borrowers facing financial hardships, allowing them to manage their debts during a challenging economic period.
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The psychological impact of student debt
Student loan debt has a significant psychological impact on borrowers, affecting their mental health and overall well-being. The stress and anxiety associated with student debt can be overwhelming, leading to feelings of depression, shame, and even suicidal ideation. Borrowers may feel trapped in unsatisfying jobs, unable to pursue their desired careers or life goals due to the financial burden of loan repayments. This can result in a decline in academic performance and a negative impact on their financial well-being.
Research has indicated a link between student debt and mental health issues. A study by Dr. Kristy Archuleta and colleagues found that college students with student loans and credit card debt experienced mental health problems and heightened stress levels. The financial strain can lead to individuals avoiding discussions about money, withdrawing from social activities, and experiencing anxiety. The constant stress of debt can also contribute to feelings of instability, affecting borrowers' perception of their financial situation and overall mental well-being.
The psychological toll of student debt is particularly pronounced among Black borrowers, who are more likely to experience long-term stress while reaping fewer rewards. Black Americans are disproportionately affected by defaulting on loans, leading to dire financial consequences, including garnished wages and impacted credit scores. This can create a cycle of financial hardship and mental health struggles.
The COVID-19 pandemic has further exacerbated these issues, with the isolation and anxiety of the pandemic contributing to increased rates of mental health symptoms, especially among youth and marginalized communities. The economic fallout has left many borrowers struggling to repay their loans, and the uncertainty surrounding loan forgiveness has added to the psychological burden.
The impact of student debt on mental health is gaining recognition, with researchers and clinicians calling for policy changes to address this growing crisis. It is crucial to provide support and resources to help borrowers manage their debt and mitigate the psychological impact, ensuring that higher education does not come at the cost of their well-being.
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The Biden-Harris Administration's role in the student loan crisis
The Biden-Harris Administration has taken several steps to address the student loan crisis in the United States. Recognizing that education beyond high school should be a pathway to opportunity, not a burden of debt, the administration has worked to fix the broken student loan system and make college more affordable.
One of the key initiatives of the Biden-Harris Administration in tackling the student loan crisis is the Saving on a Valuable Education (SAVE) plan, launched in August 2023. The SAVE plan is an income-driven repayment (IDR) plan that calculates payments based on a borrower's income and family size, rather than their loan balance. It aims to lower monthly payments for millions of borrowers, with some payments even being cut to zero. The plan also prevents balances from growing due to unpaid interest and accelerates progress toward loan forgiveness. The SAVE plan builds on the administration's previous efforts to cancel more than $116 billion in student loan debt for 3.4 million Americans, including those who have been in repayment for over 20 years without relief and borrowers who were cheated by their schools or affected by sudden closures.
The Biden-Harris Administration has also focused on providing relief to borrowers experiencing financial hardship. In October 2024, the administration approved approximately $4.5 billion in additional student debt cancellation for about 60,000 public service workers. This was in addition to the 35,000 public service workers who had their loans forgiven in an earlier round of loan forgiveness, bringing the total number of borrowers with loan forgiveness through the Public Service Loan Forgiveness (PSLF) program to 946,000, totaling $69.2 billion. The administration has also supported broader efforts to reform the student loan system, such as urging student loan servicers to improve their processes for private student loan cancellation.
Despite these efforts, the Biden-Harris Administration has faced criticism for keeping borrowers in limbo by refusing to lift the collections pause mandated by Congress in October 2023. This pause on federal student loan payments, implemented during the previous administration, has led to concerns about the financial sustainability of the federal student loan portfolio. However, the Biden-Harris Administration's SAVE plan has faced opposition from the Trump administration, which has recommended borrowers switch to alternative repayment plans with accruing interest, effectively undoing the progress made by the Biden-Harris Administration in addressing the student loan crisis.
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The consequences of not paying student loans
Many people struggle to repay their student loans and face serious consequences if they fall behind on their payments. While there are options to temporarily pause or reduce loan payments, such as loan deferment or forbearance, it's important to understand the potential impact of not paying student loans. Here are some of the consequences that can occur:
Delinquency and Default
If a student loan payment is even one day late, the account is considered delinquent. If the delinquency continues, the loan will eventually go into default. Defaulting on a student loan has significant financial repercussions and can hurt your credit rating. A poor credit rating can impact your ability to secure loans or credit cards in the future, purchase a car or house, or even affect your job prospects as some employers check credit histories during the hiring process.
Tax Refunds Withheld
Defaulting on your student loans can result in your tax refunds being withheld and applied towards repaying your defaulted loan. This means that instead of receiving your tax refund, it will be used to reduce your loan balance.
Wage Garnishment
Wage garnishment is another consequence of not paying student loans. This involves your lender obtaining a court order to withhold a portion of your wages to repay the loan. Your wages will be directly affected, and you may receive a reduced amount in your paychecks until the loan is repaid.
Limited Access to Financial Services
A poor credit rating due to student loan delinquency or default can make it challenging to obtain other financial services. This may include difficulties in securing personal loans, mortgages, or credit cards, as lenders may view you as a high-risk borrower.
If you are facing difficulties in repaying your student loans, it is crucial to take proactive steps. Contact your loan servicer as soon as possible to discuss your options and explore alternative repayment plans or loan consolidation programs that can help alleviate the burden.
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Frequently asked questions
Defaulting on a student loan can have serious consequences. Your credit score can take a hit, and your ability to buy a car or house, or get a credit card may be affected. Your wages can be garnished, or your tax refunds withheld.
President Biden implemented an income-driven repayment (IDR) plan called the Saving on a Valuable Education (SAVE) Plan. However, this plan has been blocked pending the resolution of legal cases.
The Public Service Loan Forgiveness Program is for people who work in public service jobs and may be eligible for federal debt forgiveness after 10 years on the job and 10 years of payments.
Both loan deferment and forbearance give borrowers a temporary pause in their loan payments. However, interest continues to accrue in both cases.
Student loan debt impacts Black folks at a worse rate than their white counterparts. This is due to socioeconomic factors, including income thresholds and the amount of relief provided. Black people who make six figures often become breadwinners for their families and face financial and personal obstacles that their white counterparts do not.
