Student Debt Update
Student loan borrowers have been making payments since October 2023.
The pause on student loan payments ended “60 days after June 30,” or around Sept. 1, 2023, per the agreement between House Speaker Kevin McCarthy (R-CA) and President Joe Biden to raise the debt ceiling, with payments coming due in October. With this pause ending, interest on these student loans is once again beginning to accrue. Interest has been one of the key drivers of surging student loan balances due to capitalization, the piling on of accrued interest that can swell the balance owed.
President Biden is currently working on a plan to provide broader relief to borrowers by using the Higher Education Act of 1965. This law requires the Biden administration to go through the negotiated rulemaking process, which includes holding public hearings and a series of negotiations to craft the final debt-relief plan. While this will hopefully be more effective than the administration’s original plan, it will take at least a year due to finalize. Additionally, the Biden Administration also announced $39 billion in debt relief for over 800,000 borrowers because of a one-time account adjustment for borrowers on income-driven repayment plans. The department is also set to re-evaluate borrowers' accounts every two months to identify other borrowers who have met the 20 or 25 years of payments required for this relief.
Since this pause ended, the Biden administration has seen measurable debt cancellation for borrowers. Despite being struck down by the Supreme Court, the Biden administration has been able to cancel $127 billion in loans for 3.6 million borrowers — facilitating the biggest wave of student debt cancellation since the government began backing student loans over 60 years ago. This has been done by adjusting Education Department regulations and temporarily waiving requirements to expedite debt-relief. The four largest programs currently in use include Public Service Loan Forgiveness ($51 billion canceled for 715,000 borrowers), Income-Driven Repayment Adjustment ($42 billion canceled for 855,000 borrowers), Borrower Defense to Repayment and Closed-School Discharge ($22.5 billion canceled for 1.3 million borrowers), and Total and Permanent Disability ($11.7 billion canceled for 513,000 borrowers).
As background, the amount of student debt nationwide is a staggering $1.75 trillion, 92% of which is from the Federal student loan program. $500 billion of this debt is owed by borrowers between 25 to 34, $620 billion by borrowers between 35 and 48, and $620 billion by Americans between 35 and 49. Sadly, student debt even follows borrowers into their senior years, with 2.4 million borrowers 62 and older on the hook for $98 billion.
Looking specifically at North Carolina, in 2022 over one million North Carolinians owed $49.2 billion (8th in the nation) in Federal student loan debt, with an average per borrower amount of $37,721. This debt load severely limits the ability of North Carolinians to buy a home, provide for their families or invest for retirement.
Debt relief is particularly urgent for women and people of color. In fact, women, who on average earn less than their male counterparts, account for almost 2/3 of student loan debt. Whereas 77% of African American students take out federal loans, a percentage considerably higher than the national average of 60%, after graduation, when those loans come due, this group earns 23% less than the national median after-graduation income.
Federal student loan programs were meant to level the playing field and to allow all Americans access to both quality undergraduate and graduate education and the economic benefits that accrue from higher education. Although these programs have achieved their objective of providing those with modest family incomes with access to higher education, they have, nevertheless, saddled many of these students with hefty debt, as state funding for public universities has fallen and tuition costs have escalated across the country.
According to a November 2021 report from Georgetown University, the cost of college has increased by 169% since 1980, while pay for young workers has only grown by 19%. This staggering difference is the prime reason why the programs introduced by President Biden, which follow the lead set by other developed countries, are essential. Think about it: no politician argues when asked to bail out a state or a region following a natural disaster. And over the past three decades, FEMA has spent $347 billion (in 2022 dollars) from the Disaster Relief Fund to respond to fires, floods, hurricanes, and tornados. It is time to face the fact that the student loan crisis has itself reached true disaster levels.
Along with the Biden Administration’s efforts, North Carolina Democrats and Democrats across the country must work to overcome Republican opposition to debt forgiveness programs. If we can’t, higher education will become a privilege reserved only for the elite.