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- Student loan repayment restarts after January 31, 2022.
- For many borrowers, this represents the return of a burden that's been impossible to escape.
- Biden could easily wipe their slates clean, but he's waffling.
- Eoin Higgins is a journalist in New England and a contributing opinion writer for Insider.
- This is an opinion column. The thoughts expressed are those of the author.
With student loan repayment resumption hovering in the near future (Biden's pandemic freeze on repayments ends Jan 31, 2022), borrowers are set to be right back in the crushing financial situation they were in before the pandemic.
The scale of student debt, which is owed by about 42.9 million Americans, is staggering. At $1.6 trillion with an average interest rate of 5.8%, the debt represents a major stumbling block to one out of eight Americans who entered college and university hoping to improve their lives.
George Pearkes, a financial analyst and Insider contributing opinion writer, told me that while "the typical outcome of student loans is a good one: more earnings, a higher standard of living, higher productivity, more job security, less unemployment," there is the potential for disaster "if you borrow a lot of money, and aren't well-informed on the risks of doing so, and then a hiccup comes along."
"For folks that it doesn't work for, it's a big problem," Pearkes said.
I talked to people from around the country about how their loans are affecting their plans for the future, the way the debt has affected their lives already, and the hard choices they're expecting to make over the next few months as they prepare for their repayments to restart.
The consensus was clear. For all the differing experiences, repayment plans, and hardship the people I spoke to described, they were united in their belief that the loan repayment restart is going to be a categorical disaster.
There's an easy solution: President Joe Biden's administration could either refreeze the repayment schedule or wipe the debt out by executive action. It's not only the right thing to do, it would also be a politically brilliant win for his administration.
It's 'by design'
Most students enter into their loans without a clear understanding of what they entail. "Karl," who is an apartment maintenance worker, attended a private arts school where he had to rely on loans and work three jobs while attending school full-time to survive. Today, he and his spouse file taxes separately because of his astronomical debt.
"Unfortunately at that age I really didn't understand the gravity of the financial burden I was signing up for," Karl told me. "And I'm going to pay for it for the rest of my life."
The way student loan debt is presented to unsuspecting students is "by design," Pearkes said. Students borrow for school for all four years, but paying off the accruing interest is almost impossible in the meantime, meaning that graduating seniors already owe far more than they borrowed, putting them in a hole from the start.
"If you borrow money freshman year to pay for tuition, but don't start repaying until a year after college, that's almost five years of accrued interest before repayment starts which is money that needs to be paid back," Pearkes told me.
Deeper and deeper in debt
The interest keeps accumulating as students enter the job market. Entry-level positions for a student with a BA in just about every sector aren't known for paying well, so what recent graduates can pay is seldom enough to offset the accruing interest. That leaves many borrowers deeper in the hole than they started, even after paying off their loans for years.
Alex Barrio is one of those people. He went to Florida International University College of Law and graduated in 2012 with $140,000 in debt. Since then, Barrio has paid back $40,000, but now owes over $200,000. He called the entire process "an absurd racket."
"I don't mind paying off money I loaned but hundreds of thousands of extra money in interest payments is absolutely ridiculous," Barrio said.
Things are even harder for those who attended school but had to leave early, without a degree. Danielle Cross, who attended the Art Institute of Pittsburgh online, told me that once she was cut off from financial aid after her first year, continuing school became impossible. She still owed money, though, and has worked to try to pay it off since - to little avail.
"My loans have gone from around $20,000 to over $40,000 because of interest," she told me. "Every payment I have made has done absolutely nothing."
The freeze in repayments and interest accrual provided a respite from the predatory, crushing reality of student loans. Borrowers were able to reset their finances without the millstone of student loans hanging around their neck. James, a civil servant in the DC area who is trying to have his debt forgiven under the 10-year Public Service Loan Forgiveness Program, told me that the freeze was a big shift for the better.
"The $1,000 per month I wasn't paying to Fedloan Servicing made a big difference in my life," James told me.
But as of January 31, 2022 that pause is over. Repayments will restart and interest will once again begin to accrue on the debts. For a growing number of lawmakers, that's unacceptable - and the fact that Senate Majority Leader Chuck Schumer, a pure political weathervane, is at the forefront of the charge to forgive the debt is a clear sign that the winds have shifted.
As Schumer and many, many others have repeatedly noted on social media, Biden has the power to dispense with the entirety of federally held student debt with the stroke of his pen. Student loan cancellation isn't hard, and in addition to being the right thing to do, which is seldom motivation enough for politicians to do something, loan forgiveness would stimulate the economy and earn the political loyalty of millions of Americans, many of whom have decades of voting ahead of them.
Progressive Democrats have called on Biden to forgive $50,000 per borrower, which would erase the debt of 80% of those who are still in debt. But the president, who said as recently as February that he'd forgive $10,000 per borrower, appears to have forgotten the issue completely.
Biden's waffling on the matter is frustrating, public school special education teacher Nathan Melby told me. Melby, who still owes around $50,000 for his MA in special education, said he feels "abandoned by Joe Biden and his garbage promises that he cared about student loan debt." He's not alone.
"The administration has actually made this issue worse by proposing an idea and then having zero followup," borrower Nick DeSisto told me.
The consequences of inaction are clear. Millions of borrowers around the country are trapped under mountains of debt for the sin of wanting a better life. Releasing them from that burden would be a boon to their future prospects and benefit the country's economy - not doing so is consigning them to a lifetime of debt. Sadly, most borrowers I spoke to, including Melby, aren't expecting help.
"I have basically resigned myself to the fact that I will be paying it until I die," Melby said. "I only make enough to pay the minimum every month."