Many Student Borrowers Played By The Rules, But Their Debts Only Grown

WASHINGTON — Opponents of President Joe Biden’s plan to forgive up to $20,000 in student debt for millions of borrowers say it’s unfair to people who diligently repay their college loans.

Sen. Joe Manchin (DW.Va.), for example, called the “excessive” relief and said people should “earn” it.

But for many, making regular payments did not guarantee that a loan would ever be repaid.

Research published last month by the Federal Reserve of New York Bank shows that every year since 2004, millions of student borrowers who were current on their loans nevertheless had stable or even growing balances. Fewer current borrowers had declining balances.

At the end of 2019, for example – before then-President Donald Trump suspended student loan repayments – only 37.1% of borrowers had a declining balance, while 48% had a fixed or fixed balance. rising, according to data from the New York Fed. An additional 15% was overdue or in default. (The pause pushed more borrowers into the fixed or growing balances category at the end of last year, while fewer were in default.)

Reasons for increased balances include forbearance periods, during which a borrower is not required to make payments, and income-based payment plans with low monthly payments that do not cover interest . In either case, interest still accrues and is added to the principal of the loan. The federal government has encouraged troubled borrowers to pursue both options.

Up to 20 million student debtors could see their loan balances disappear completely under Biden’s initiative. In total, no less than 43 million people could at least partially benefit from it. The program has not started yet, but the administration has asked borrowers to sign up for email notifications.

But even before the president announced the debt relief, a significant number of student borrowers were in repayment plans who not only limit monthly payments to a percentage of their income, but also automatically cancel any remaining debt after 20 or 25 years – meaning millions of people would have ultimately had their debt canceled, even if Biden had done nothing .

“Student loans won’t be repaid anyway, so all this talk about cancellation is out of touch with reality,” he said. Marshall Steinbaum, student loan expert and associate professor at the University of Utah.

The economist’s own research from 2020 showed that every year since 2008, the majority of borrowers who took out loans ended up with larger balances than when they started.

The share of loans with a current balance greater than the original balance increased each year from 2009 to 2019.

Steinbaum likened the combined $1.6 trillion in student loan debt to water that fills a bathtub. The tap is running as students take out more and more loans, but the tub won’t drain because too few are paying them back.

Debt cancellation proponent Sen. Elizabeth Warren (D-Mass.) described the situation similarly.

“Every year, a number of people go to university for the first time. And a number of people end up paying off debts they incurred while in college. And overall, you could predict those numbers would stay balanced,” Warren told HuffPost.

“The economy has stayed about the same. The family income has stayed about the same. And yet the outstanding student debt balance has grown by almost $100 billion a year.

In other words, the bathtub is overflowing and the water leaking out represents a debt that borrowers do not have the capacity to repay and that in many cases the government already intends to cancel. when earnings-based payment plans reach the end of their 20-year term. . Biden’s plan, meanwhile, will partially drain the tub right away.

Steinbaum said Biden should immediately cancel all debt to force a reckoning with the unsustainable costs of the higher education system. “The student loan experiment was a mistake,” he said.

Republicans and even some Democrats have criticized the president’s pardon plan as unfairly benefiting undeserving students while exacerbating inflation.

“It’s a slap in the face for people who have worked hard to get their loans paid off,” Sen. John Thune (RS.D.) said this week.

Sen. Ted Cruz (R-Texas) told HuffPost he’s confident conservative legal groups will successfully sue to block Biden’s debt cancellation program, which relies on a law from the era of 9/11 designed to help members of the armed forces manage their loans. Any court, Cruz said, “will find that Biden lacks the legal authority to engage in this unfair and senseless policy.”

Sally Dressel of Pittsburgh had a career in computer operations for an industrial painting company when she got tired of shift work and decided to go back to school in the late 1990s. She took out a loan $35,000 to Stafford at 6% interest to pay for a Bachelor of Commerce degree. Stafford loans are usually advertised as taking 10 years to repay.

Dressel soon landed a job as a claims handler for an insurance company – a job that required her new degree. But the interest she didn’t pay during an initial deferral period pushed her loan balance to $41,630, according to a transaction history she shared with HuffPost.

She paid $400 a month for the past decade. Dressel started a new job for another insurance company in 2020, and since then her employer has paid an additional $170 per month. In total, her numbers suggest she paid over $35,000 in principal and $33,000 in interest. A recent statement says she still owes $4,374.

“I’m 65 and I’ve been in the neck for over 20 years.” Dressel said in an email. “So clearing that last $4,387 would mean the world to me.”

She doesn’t mind if other borrowers get a bigger break than her under the Biden plan.

“To think that Republicans would fight this in court when I finally think someone is helping me would make me more angry than I can say,” she wrote.


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