Summary:

Determining if there’s a student debt crisis in America depends on who you ask.

For underwater borrowers, with an average balance approaching $40k, the answer is a decide “yes”.  However, just 20% of the adult population holds any secondary education loans, making this topic irrelevant to many.  Then, there’s the university institutions, for whom this perpetual influx of capital, allowing rapidly rising tuition rates, is a boom rather than a bust.

Student loan debt is a financial burden which can hinder many other elements of life advancement: establishing an emergency fund, buying a first home, taking risks on small business start-up, marriage and subsequent family formation, building adequate retirement savings, or servicing other debt obligations.  Understandably, this budget stress is associated with anxiety, sleep issues, panic attacks, and even depression.  [REF]

It's clear from reviewing the numbers that debt for education is on a steady upward trajectory.  Since 2010, student loan totals have more than doubled, and are now counted in trillions of dollars.  Collegiate attendance has only increased 10% over this same timeframe, highlighting the substantial obligation rise per borrower.

Student debt is America’s second largest financial outlay, behind only primary home mortgages, while outpacing both auto and credit cards, along with all other common forms of personal loans.  As shown in the graph below, this increase follows essentially a straight line, seemingly impervious to adverse economic conditions, including the 2008 Great Recession, and 2020 COVID-19 Pandemic.  [REF]

In the wake of the country’s most recent economic calamity, the COVID-19 shutdown, the U.S. government put all student loan obligations on pause, starting in the middle of 2020. Even now, despite resumption of repayment mandates back in 2023, there’s still much confusion, and many loopholes, in the debt service system.

Using the real numbers and legislative timeline regarding student loans, it’s interesting to look at how we got here, where we are headed, and what can be done to appease the huge educational debt pressures across America.

At this point, the problem has grown well beyond the rare individual student’s default, a couple bad actors in the lending space, or targeted support for public service professions, and is now a fiscal liability and political hot-button completely intwined with society at large.

Statistics:

Over the past 3 decades, the number of households with outstanding student loan debt has tripled.  This trend is increasingly noticeable amongst homes led by a person under 40 years of age.  Even worse, the individual balances for education have quadrupled over this same timeframe, from roughly $10k to $40k.  The pricing power of colleges is clear.

Tellingly, graduate school lending accounts for over half of all outstanding student loan balances.  These advanced degrees take several years to complete, and are often quite expensive from a tuition standpoint.  While the potential pay scale is higher with a master’s or doctorate, average student debts come in at $59k and $108k respectively, with over 3/4ths of postgraduates requiring loans.  As such, a detailed cost-benefit analysis of expenses versus compensation needs to be made before committing the extra time and money.  [REF]

From 2006 to 2023, national student loan increased essentially linearly, from $520 billion to $1.73 trillion.  This equates to over a 7% compounded annual rate, far outstripping key United States economy metrics for experienced inflation and gross domestic product, while nearly matching the stock market’s robust returns over this timeframe.

The federal debt portion is $1.60 trillion, which represents 93% of all outstanding capital.  This tally spans across 43 million borrowers, which equates to an average debt balance of $37k.  Gone are the days of credit unions, consolidation services, and financial institutional lending; this industry has clearly moved from the private to public sector.

Student loan growth is currently doubling the pace of already rapidly rising tuition.  This divergence is associated with the expanded ancillary costs of secondary education, as well as less money being available from family support.

The typical public university student today borrows $32.5k to earn a bachelor’s degree.  An understandable requirement, as the cost of attending a 4-year, in-state, public college comes in at $27.1k.  Annually.  Heading to a private, non-profit, institution is even more expensive, at $55.8k per year, when tuition, supplies, and living expenses are all tallied up.  A pricey proposition.

While college tuition costs have been steadily increasing in recent decades, significant student debt is by no means a modern phenomenon.  While the majority of loan holders are under 40 years of age, the outstanding balances are distributed fairly even across all cohorts, and disturbingly high, as shown in the following pair of displays.  [REF]

34% of borrowers owe less than $10k in federal student loan debt, with 79% under the $40k level.  Sure, there’s plenty of 6-figure balances incurred by doctors, lawyers, and veterinarians which skew the data, but both the mean, and median, values are quite disconcerting.

Like most elements of society, discrimination and injustice abound across the student loan sector.  Per the bar chart below, female, black, and for-profit cohorts exhibit much higher balances relative to their peers, suggesting predatory practices.  Not surprisingly, default rates mimic these outstanding balances.  [REF]

1 in 5 Americans with an undergraduate degree, and 1 in 4 with a postgraduate credentials, have outstanding student loans.  Just 20% of U.S. adults report having paid off all their student debt; it takes the average successful borrower 2 decades to settle up on their loans.  Even more concerning, over 25% of individuals feel they will never be able to pay off the accrued educational debt burden.  Not exactly a comforting financial position to be in.

Support:

During COVID-19, drastic measures were taken with regards to student loan forbearance.  This brash political action was motivated by a substantial spike in repayment rates, with 11% of individuals reporting to have missed a payment by July 2020.  For reference, in 2019, the last normal calendar year, the default levels were just 3%.

Federal student loan interest was initially suspended on March 13th, 2020.  This administrative full forbearance, encompassing paused payment and zero percent accrued interest.  Temporarily, of course.

The CARES Act was introduced by the U.S. government in the summer of 2020.  This bill provided wide-sweeping debt relief to an estimated 35 million borrowers nationwide.  Following this initiative, repayment decreased 82%, and forbearance increased 375%.  The landscape of student loan bills was drastically changed with a simple stroke of the pen.

From this key turning point, 66% of all federal student debt remained in forbearance until the end of the government program in September 2023.  At that time, less than 1% of federal student loan borrowers were actively repaying, as there was little incentive to.

As a result, 2023 was the first calendar year since the turn of the millennium when total student debt totals decreased annually, falling by 2%.  This dip highlights the confluence of anomalous factors: pause in required repayments, eliminated interest accrual, reduced college attendance, and of course, enactment of various federal forgiveness programs.

While the afforded administrative relief was great for borrowers from federal entities, it did little to help those with private loans.

Though only half of individuals borrow from the government, this cohort accounts for over 90% of the total student debt.  Private loans tally just 7.2% of the total, a mere $128.8 billion.  However, nearly 90% of this amount is procured by undergraduates, often directly or tangentially through their select higher education institution.

For any action, there’s an equal and opposite reaction, per the classic physics maxim.  This offsetting relationship also holds true in the equity realm, where one person’s liability is another person’s asset.

In the case of education loans, if attendees aren’t paying, then colleges don’t receive any income.  While borrowers became unburdened by student debt forbearance, institutions which rely on incoming revenue to maintain operations became increasingly stressed.

Private student loans are much more likely to be deferred and defaulted on, at 20% and 5% respectively.  Many of these for-profit entities offered brief 3-month payment suspension in the middle of 2020, but administrators were hesitant to defer interest indefinitely for financial reasons.  This business risk is now coming home to roost, several years later, as evidenced by the recent closure of various public and private institutions.

Since the pandemic, 40 major universities have folded, with another 20-plus merging for resource reasons, while many others remain on the ropes from a cash flow standpoint.  Though most of these operations were small potatoes, with enrollment in the hundreds, there’s a few notable enterprises which have failed to succeed, despite achieving scale.

The awkwardly named IUPUI, which was an amalgam of Indiana and Purdue satellites.  Independence University, headquartered in Park City, Utah, with the reason for abrupt 2021 shutdown still unknown, after nearly half a century in operation.  And DeVry, the private, for-profit, primarily online, education conglomerate, which has shuttered nearly 20 brick-and-mortar operations since the onset of the pandemic.  Apparently, everything is going digital these days. [REF]

Individuals attending private, for-profit, universities, long known for their predatory admissions and tuition practices, have typically exhibited more financial challenges, with nearly a quarter of former students struggling to make monthly payments.  This is in stark contrast to individuals associated with public and private institutions that are non-profit, where less than 1 in 10 borrowers fall behind.

One of the most important relief packages, established by the U.S. government decades ago, and understandingly coming back into the forefront of societal consciousness, is the Public Student Loan Forgiveness Program.  This protocol was established to incentivize young folks to pursue careers in public service, by offering a decade-long path to debt forgiveness.

Since original PSLF legislative implementation, passed way back in 2007, there have been challenges regarding communication, with many borrowers unaware of eligibility, while others are repeatedly wrongfully denied.  As with most government programs, the paperwork process is very convoluted, with lots of misinformation and confusion.

Nearly 4 million indebted students are eligible for PSLF, based on the recently expanded rules.  However, just 3% of such loans are associated with actual applications that have been processed for forgiveness, equating to just $1,000 per eligible borrower.  This low participation rate equates to $46.8 billion in relief over the nearly 2-decade life of this program.  If everyone qualified signed up online, a comparable amount could be wiped out all at once with a single presidential signature.  Constitutional legality challenges aside, of course.

Lots of student loan scams have materialized since 2020: fake debt forgiveness promises, bogus refinancing and consolidation schemes, excessive fees for debt help.  These predatory practices, like many over the web, target financially challenged marks.

To see how the educational enablement system got to this point, it’s valuable to look back into the annals of congressional legislation.

Setup:

As Joe Biden started finding his way as the junior U.S. Senator from Delaware, between 1977 to 1989, he supported several bills which caused student loan borrowing to balloon by 7 times, from $1.8 to $12.0 billion, in just over a decade.  A huge rise, but not even a drop in the bucket, even inflation adjusted, relative to what has transpired in this space since the turn of the recent millennium.

The Middle-Income Student Assistance Act, Higher Education Amendments, Auxiliary Loans to Assist Students, and Parent Loan for Undergraduate Students Program, all progressed through Congress during this time period.  This was an era of substantial legislative activity with regards to secondary school funding.

Over 3 decades later, the PLUS law still accounts for a measurable percentage of federal student debt, with the repayment burden placed on generous adults rather than their offspring.

All these government programs favored large public entities over small private businesses.  It’s no wonder massive federal loan collectives like Sallie Mae in the education space, and Freddie Mac for residential housing, became so large and successful.  Classic governmental bureaucratic bloat, while shunning natural capitalism competition, using some disarming and archaic names reminiscent of friendly grandparents.

Throughout his time in the Senate, Mr. Biden repeatedly championed legislation to minimize, and even eliminate, bankruptcy protection for individuals holding student loans.  His crowning achievement in this regard was getting the Bankruptcy Abuse Prevention Act pushed through Congress in 2005, with Republicans holding the Presidency and both houses of Congress, while most Democrats voted against this restrictive bill.  [REF]

While nearly all other forms of consumer debt can be wiped out through Chapter 7 bankruptcy legal proceedings, educational expenses remain a weighted noose around the neck of young borrowers.  Since this 2005 rule was signed into law, private student loan balances have jumped from $56 billion to $129 billion by 2020, with no hope of relief in sight.

The broad discrepancy in Democratic party policy with regards to various aspects of student loan treatment resurfaced during the 2020 primary race.  The two key players, Joe Biden and Elizabeth Warren, continued a feud that dates back over two decades, to Mrs. Warren’s time as a bankruptcy law professor at Harvard.

In September 2019, Hill-HarrisX poll showed 72% of Democrats were in favor of eliminating all existing student debt, and making higher education free moving forward.  The liberal base had spoken, in favor of substantive socialism.  Any presidential candidate on the left was going to have to appease this clamoring crowd.  [REF]

Warren.  Biden.  Bloomberg.  Sanders.  Buttigieg.  Proposed policies puked out from podiums were bold and wide sweeping, regardless of economic feasibility or constitutional legality.

In typical Bernie fashion, he figured the best plan was to cancel every last cent.  Liz was more measured, proposing $50k of relief for all borrowers, with some means testing at the high end of the income spectrum.  Meanwhile, Joe stood firm; folks who took out debt should be required to pay in back, in true honorable fashion.

In speeches on the 2020 campaign trail, Biden justified his strict stance based on being one of the commoners, purportedly holding nearly $300k in obligations for his trio of offspring, who went to privileged and expensive private universities like Yale and Penn.  For a family estimated to be worth $15 million, this educational expense is just a drop in the bucket.

There’s a decided irony regarding how President Biden’s stance on student loan forgiveness has shifted since becoming the 46th U.S. president.  Granted, it’s inevitable that values and priorities morph to fit the wavering whims of public sentiment, especially when one spends half a century in the upper annals of the United States governmental complex.

The Biden administration’s cabinet is highly decorated from an education standpoint.  All are college graduates, with the 22-person collective averaging over 2 university degrees per person.  Many of these are honorary awards, offered up to influential political figures as they moved up the leadership ranks.

While espousing diversity in many other elements of his chosen collective, like gender, race, and age, substantial educational acumen seems like a mandatory prerequisite for employment.  This elitist educational trend pervades all levels of the national government.

There’s a decided hypocrisy associated with a group of rich folks, who attended the finest universities, clamoring from their high perch about manipulative college tuition rates of today, which their poor policies of the past enabled.

There is one executive branch aspect when the walls of privilege are crumbling.  Mr. Biden is the first president elected in the past 9 cycles who doesn’t possess an Ivy League degree.  With the formalization of the Harris-Walz ticket, this trend of leaders not hailing from Harvard or Yale could continue.

Sequence:

There were many elements of the United States economy and finances which changed during the COVID-19 debacle.  Most notably may be the public perception of student loan debt, and increased emphasis on asking the government to address this issue.  With over 40 million Americans currently holding federal loans for education, it’s understandable this topic is very important to citizens, and therefore politicians.

In a day that will live in historical infamy, on March 13th, 2020, President Donald Trump declared a national state of emergency across America.  This same day, acting the Secretary of Education, Betsy DeVos, set interest on all federal student loans to 0%, and suspended required payments for 2 months.

Former V.P. Joe Biden, already on the campaign trail to earn the Democratic nomination for president, latched onto the loan forgiveness topic as a political ploy on March 22nd, 2020, when he texted a proposal to cancel $10k of debt for all national borrowers.  This announcement joined a flurry of fiscal aid ideas espoused to limit the economic impact of the pandemic.

Just days later, on March 27th, 2020, President Trump signed into law a quickly drafted, wide sweeping, much needed, relief program known as the CARES Act.  Part of this legislation was a pause in all federal student loan payment requirements and interest accrual, through the summer of 2020.  Like the disease itself, this brief hiatus proved much more entrenched as time progressed.

Predictably, during Trump’s tenure, the Department of Education, despite the former president’s disdain of this organization, extended the payment pause twice, in August and December of 2020, signaling to all voters the break would last through the upcoming election.  Never let a good crisis go to waste.

This maneuver was executed without going through Congress, by citing the HEROES Act of 2003, which gave the Secretary of Education, and by extension the executive branch, sweeping powers in times of national emergency.  Not to be outdone, President-elect Joe Biden extended this student debt forbearance policy through September 2021, on his inaugural January 20th day in office.

Shortly after Mr. Biden claimed the highest office in the land, the Democrats, led by Massachusetts Senator Elizabeth Warren, resurfaced her original $50k per borrower student loan forgiveness plan.  While this bold form of the bill was never voted on, this scheme paved the way for future legislation put forth by President Biden’s administration.

The original Biden student debt relief plan, which he campaigned on, was estimated to enable forgiveness on $430 billion dollars of the $1.77 trillion outstanding.  This scheme was meant to eliminate $20k of debt each for a very large swath of borrowers.

In a foundational move, on October 6th, 2021, the U.S. Department of Education drafted a special waiver that substantially expanded the scope of the Public Service Loan Forgiveness program, or PSLF, resulting in nearly 400k American borrowers immediately having their debt cancelled.  At least theoretically.

Meanwhile, unable to get any traction in Congress on broad sweeping student loan forgiveness legislation, President Biden continued to sign a quartet of executive orders pushing out the pause: August 6th, 2021, December 22nd, 2021, April 6th, 2022, November 22nd, 2022.  Which explains the confusion amongst borrowers, many of whom were relieved, both emotionally and financially.

In April of 2022, President Biden’s press secretary floated the idea of using executive order powers to directly forgive student loan debt.  It’s not until August that the Department of Justice deemed this authority, again granted by the HEROES Act, to be legal.  The next day, August 24th, 2022, Biden instructed the Education Department to eliminate $10k for all federal borrowers, and $20k for those with Pell grants.

Supreme:

Subsequently, in the fall of 2022, a flurry of lawsuits, ranging from citizens, to students, to states, were unleased regarding the legality of the POTUS utilizing an executive order to broadly cancel education loans.

These cases quickly escalated up the U.S. judicial system, from the local district, to circuit court, to federal appeals, then reaching the Supreme Court.  This was a true legal mess, involving both the executive and judicial branches of government.  At least the proceedings were progressing quickly.

Due to legal challenges, Biden’s student loan relief plan was only live on the government’s Federal Student Aid portal for a month, functioning from October 14th to November 11th, 2022.  Over this short period, the simple form, which requested just basic identification information, garnered substantial interest from debtors.

By the end of 2022, 26 million applications were submitted into the proposed student loan forgiveness program.  Thus, a lot hung in the legal balance, both metaphorically and physically.

Supreme Court arguments in this case were heard starting on February 28th, 2023.  The primary opposing party was a sextet of Republican-leaning states, Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina, who argued that Biden’s approach to cancelling federal student debt overstepped presidential powers, would lead to reduced government revenue, and didn’t go through the appropriate legislative channels.

At the core of the judicial proceedings was the definition of the HEROES Act, or Higher Education Relief Opportunities for Students, a government acronym which actually made sense for once.  This rule, rapidly pushed through Congress following the 9-11 catastrophe in NYC, which spawned many governance changes, is strategically vague in verbiage, and thus broad in scope.

As written, the sitting Secretary of Education has unfettered authority to “waive or modify” any existing student financial assistance program for individuals “suffering direct economic hardship” due to adverse circumstance like “military operation or national emergency”.  [REF]

The COVID-19 national, and essentially global, pandemic shutdown clearly fits this set of descriptors, in the minds of both Presidents Trump and Biden, according to research by their fleet of staffers.  The window for all manner of student loan machinations was wide open, and ready to jump through, for any savvy politician.

The spring of 2023 brought the topic of federal student loan forgiveness squarely into the U.S. government legislative preview.  The parade of partisan posturing was kicked off in March, when the Government Accountability Office, the U.S. leadership’s fiscal accountability arm, a clear oxymoron, deemed debt relief on a grand scale would require Congressional approval.

On April 19th, 2023, the Republican-led House of Representatives pulled the topic of student loans into the perpetual United States federal debt ceiling negotiations.  A procedural act presided over by a group of morons, no “oxy” prefix needed in this case.  There’s a decided irony to utilizing one leveraged monetary liability to increase another debt burden.  It works when the entire national budget is just numbers on a spreadsheet.

While the final negotiated deal didn’t put a nail in the coffin of forgiveness, it did cause a pretty deep flesh wound.  This gash was reopened by the House on May 24th, 2023, when this same legislative body passed an explicit act to block President Biden’s one-time student loan reconciliation proposal.

June 2023 was another tough month for all those in favor of wide sweeping federal student debt elimination.  On the first day of this calendar segment, the Senate followed through on the House resolution, leveraging a few Democratic votes, and a few abstentions, in addition to the entire Republican contingent.

But the real blow came at the very end, on June 30th, in the form of a 6-3 Supreme Court decision blocking the entire student loan forgiveness endeavor.  The dominant cohort of conservative Justices cited an overstep of the limited powers afforded to the executive branch by the HEROES Act.  [REF]

After this legislative setback, the remainder of 2023 was occupied by the Department of Education negotiating with various important government entities.  Over the course of 4 increasingly contentious sessions, the key parties on both sides failed to align with negotiators.  Tensions, and frustrations, were running high.

Time to get back to the drawing board, to regroup, and rewrite, looking for a new legislative loophole. 

Save:

Through the end of 2022, $29.3 billion had been wiped out, via 5 different student loan forgiveness programs.  This amount represents just 7% of the generous forgiveness package President Biden campaigned on.

Over half of this amount, $14.9 billion encompassing over 233,000 borrowers, has been achieved through limited waiver discharges under the original Public Student Loan Forgiveness program.  The 120 consecutive payments rule, forking out just the minimum interest coverage value is fine, remains in place, but the qualifying occupation list has been expanded substantially.  This approach is the crown jewel of the scheme, wiping out an average of $63k per borrower.

360k borrowers achieved relief of $6.5 billion via the Total and Permanent Disability discharge method, by demonstrating a debilitating medical condition with a doctor’s note, processed through the Veteran’s or Social Security Administrations.

The long-running Teacher Loan Forgiveness program, in place since 2009, has helped over 400k education industry professionals, resulting in $3.7 billion since inception.  The relief rules and effectiveness have remained fairly constant over time, with steady annual forgiveness sums around $250 million.  Since this approach requires 5 years of service at a qualifying low-income school, the cancelled loan amounts are typically lower, averaging under $10k per person, with a $17.5k cap.

The remaining $4+ billion in loan elimination prior is attributed to a pair of supplemental programs roughly equal in size, meant to protect student borrowers from misconduct or ineptitude exhibited by the higher education facility they attended.  Both of these initiatives are self-explanatory based on their legislative monikers: Borrower Defense to Loan Repayment and Automatic Closed School Loan Discharge.  [REF]

Helpful relief for some students, but not nearly the size or scope that the incoming administration postulated and promised.

Enter the Saving on a Valuable Education, or SAVE Plan.  This act focuses on people who originally borrowed less than $12k, and have been making consistent payments for the past 10 years.  This new scheme has the potential to facilitate another $39 billion of student loan debt.

As of May 2024, nearly 8 million individuals had enrolled in the SAVE program online, with half these folks being assigned a required bill of $0.  Which makes it pretty hard to miss a payment, and pretty easy to rack up the required 10 years of consistent debt service.  Additional outreach efforts are underway to contact others who have eligibility under the SAVE requirements.  [REF]

Rules regarding mandated monthly payment for those on the SAVE Plan requires doing some math.  The program states that borrowers must apply 10% of their discretionary monthly income towards the debt.  This value is determined by subtracting an individual’s adjusted gross income, or AGI, from 225% of the poverty line, a value which is currently $34k in 2024.  In July 2024, this required payout portion was reduced to 5% for all undergraduate loan holders, providing a welcome cushion to income depletion.

However, the wave of legal setbacks continues to threaten the full extent of student debt relief being realized through SAVE.  An even more conservative back-up approach by the Democrats was clearly needed.

By the last month of 2023, a Plan B strategy was conceived and vetted.  With a focus on needy, stressed borrowers, due to a plethora of extenuating circumstances: holding insurmountably high debt, degrees from low-value-add universities, existing 25+ year repayment duration, forgiveness eligibility under existing federal programs.

In mid-April 2024, President Biden came public with a new assurance that the Plan B solution is moving forward smoothly.  The primary target audience for this new approach are borrowers whose balances are larger than when they originally took the loan.

An outcome which requires some impressive monetary engineering, and lack of financial acumen.  Only in the realm of high interest credit cards and payday loans does this absurd situation play out.  Hopefully the majority of federal student loan borrowers are not in this undesirable position.

Current espoused Plan B metrics: 30 million helped in some manner, 23 million to have all accrued interest wiped out, 10 million experience debt forgiveness of at least $5k, 4 million get their entire federal obligations zeroed.  As the 2024 presidential election nears, it’s important to make promises to one’s base, even if the desired outcomes may not come to fruition, and the existing leader is no longer is the running.

In May 2024, the Biden administration announced goals to forgive another $7.7 billion for 161k borrowers, which would skirt the recent Supreme Court ruling on unconstitutionality.  This package could bring the total debt forgiveness tally under Biden up to $167 billion across 4.75 million students, equivalent to helping nearly 1 in 10 borrowers in some manner.

This alternative approach includes a trio of distinct initiatives.  Again, the jumbled methodology highlights the judicially hamstrung administration’s current mode of operation.  The game relies on finding loopholes for specific types of borrowers, as opposed to creating new substantive and overarching policies.

$5.1 billion across 66.9k borrowers through Public Service Loan Forgiveness, designed for those working in the public service realm and other non-profit fields.

$1.9 billion for 39.3k older adults receiving relief through income-driven repayment which was poorly executed by loan servicers.

$0.7 billion encompassing 54k individuals who qualify for automatic relief as part of the SAVE Plan based on the information they entered online.

Aside from these piecemeal policy wins, here, in the fall of 2024, not much has changed in the overall American student loan landscape.  That’s what happens when the entire space goes on a government mandated pause.  The current total tally is still $1.6 trillion in federal student loan debt, spread across 43 million borrowers.  The values, and participants, have essentially been in a time capsule since early 2020.

Most important, the 12 month “ramp-on” period, created by the U.S. Department of Education in the September of 2023, has allowed borrowers to ease back into their obligations.  That final waiver is coming to an end this month.  Soon, debt service processers and credit ratings agencies will be allowed to return to regular enforcement protocols.  If the can doesn’t get kicked down the road again.

Sentiment:

Considering how politically divided the nation is currently, it’s unlikely the topic of student loan forgiveness will go away any time soon.  With the upcoming presidential election hinging on just a few thousand votes, in half a dozen swing states, any potential lever that can be used to sway citizens will inevitably be pulled.

According to polls from the renowned CATO Institute a few years back, administered in the depths of the pandemic, 64% of Americans supported student loan cancellation of $10k, for any individuals with annual earnings under $150k.  88% of self-identified liberals were in favor of some forgiveness, as opposed to just 37% of conservatives. [REF]

From a demographic standpoint, females favor these initiatives 20% more than their male counterparts.  Meanwhile, lower wages earners under $50k are 4 times more supportive of student loan forgiveness than individuals making over $100k annually.

As the election approaches, partisan posturing has ossified, widening the already vast chasm.  The political polarity is clear simply by looking at a breakdown of Democrats and Republicans support for student loan debt cancelation, according to a recent YouGov poll.  [REF]

While the relative values have remained fairly constant over the past few years, the divergence in opinion has broadened substantially.  As show above, a majority of conservatives now oppose any form of student debt relief.  In contrast, 7 of 10 liberals are in favor of $10k or more of cancelled loans, with 1 in 4 advocating for full elimination.  Understandably, rational independents fall squarely in the middle of this sentiment.

It’s also interesting to look at the current breakdown of the electorate with regards to President Biden’s handling of the student loan issue while in office, relative to his campaign promises.  As expected, the opinions fall generally along party lines based on the bar graphs shown.  [REF]

In classic American politics fashion, the partisan preferences are clear.  However, even a quarter of Democrats are disapproving or indifferent to the actions of the Biden administration with regards to student loan support.

Another telling value from this diagram is the separation in opinion between those with and without student loans, who show an 8% gap in approval.  This juxtaposition between the have and the have-nots pervades many elements of the economy, and will continue to be a point of contention with regards to political policy preferences going forward.

Another area of demographic contention is related to the young versus old in society.  The Boomers versus the Millennials.  The privileged versus the struggling.  This agism conflict is only becoming more contentious over time.  And student debt is the new landscape on which this generational war will be waged.

Such societal skepticism is understandable, based on current life circumstances for the youngest adults in America.  Many recent and current collegiates, those hailing from the Gen Z cohort, have regrets about their higher education experience, and wish they would have done things differently, as highlighted in the following bar chart.  [REF]

This young group is where the most debt has been racked up recently, and the prospect of loan forgiveness most topical from a life experience standpoint. 

Considering the constant bombardment of social media upon these adolescents, it’s easy to assume everyone is better than you, debt free and thriving in the workplace.  But the actual student debt data tells a drastically different story.

Strategy:

Don’t worry if you’re confused about the various federal loan repayment options.  Considering the fragmentary nature of the recent acts, using executive orders rather than congressional legislation, the amalgamation of programs is quite disjointed.

At least, in true U.S. governmental fashion, they’ve kept all manner of silly acronyms for the various initiatives.  The table below breaks down all the federal repayment plans by borrower quantity and total balance outstanding.  [REF]

Figuring out which repayment plan an individual is linked to is just the starting point.  Next, borrowers must navigate the complexities of each protocol.  Also, the rules related to mandated monthly outlays and required duration of adherence are constantly in flux. 

There’s nothing worse than being forced to monitor legal minutia on government hosted websites, which are inevitably out of date and out of touch with the commoners.

As of now, per the administration’s tabulated statistics, through various extension plans, 10.5 million borrowers, equating to nearly 30% of the total, remain in some form of holding pattern, ranging from deferment, to forbearance, to default, to a grace period, as shown in the next chart.  [REF]

More important is huge shift from forbearance to repayment over the past year, encompassing over 70% of the collective in each case.  An additional 6 million borrowers are on the verge of entering default when the calendar rolls over to October, and incurring the resulting financial penalties.  Student loan obligations and servicing are slowly returning to normalcy, much to the chagrin of many folks.

Despite many other changes to the student loan treatment after COVID-19, the collections division at the Department of Education remains unmodified.  This entity has broad sweeping powers to claw back defaulted debt, including garnishing wages, withholding Social Security, and restricting federal financial aid.  It will be interesting to see how aggressively this entity enforces their obligations in the near future.

There’s lots of data from the Education Department on which individuals are struggling.  This cohort generally has low income from unstable employment, as a result of not earning a university degree, despite incurring education loans, and are older than 45, with a long history of repayment challenges.  [REF]

This segment is a testament to the fact that expensive secondary education isn’t for everyone; the financial burden of borrowing can become a lifelong drag on getting ahead.  With limited income, keeping a roof over one’s head, and food on the table, is understandably a higher priority than paying for incomplete and useless college coursework.

Regardless of how effective President Biden’s student loan forgiveness efforts turn out to be long term, the rapidly executed measures in 2020 have certainly had a beneficial impact in the short run.  Interest holds and payment forbearance for several years have helped recent graduates survive a difficult job market during the beginning of the COVID-19 pandemic.

However, there are many unintended consequences of student loan relief.  One odd element is that the cancelled debt would be taxed as income.  It’s hard for struggling folks, at their first job, with limited income, to foot a multi-thousand-dollar tax bill in a single year.  Conveniently, the Education Department confirmed that borrowers could opt out of this help, eschewing the relief these young people desperately need.

The incredible indebtedness of the nation, especially the Millennial cohort, has shed light on the exorbitant costs of college currently, and will hopefully drive reductions to university tuition rates in the future.

Solutions:

It’s obvious that student loan forgiveness is a complex and polarizing topic.  Attending university is clearly a financial enabler for teenagers.  But heaps of debt can be a lifelong debilitating crutch.

It seems disingenuous to offer wide-sweeping relief at a specific point in time, with no plans to fix the underlying issues regarding excessive tuition costs.  What about the folks who sacrificed early in life to diligently pay off their college debts?  Or those individuals who didn’t attend secondary schooling, be it due to lack of means, or selecting an alternate career path?

As shown in the plot below, some relative progress on the student loan problem was actually being made, even before the forbearance and forgiveness measures put in place during and after the pandemic.  [REF] 

There’s a clear trajectory downward in outstanding student debt as a percentage of personal income.  This may suggest that students are finally getting the memo, earning degrees and achieving employment in lucrative industries which justify the high cost of secondary education.

Regardless on one’s political leanings, this development should be applauded; it’s a beneficial sign, not just for individual contributors, but also society at large.  The next challenge is how to manage all the debt which has piled up over the last few decades, as a result of less than optimal fiscal choices on the part of students, universities, and governments.

Recent administrative initiatives have refocused around methods for identifying “substantial hardship” of borrowers.  A worthy effort, which can undoubtably be enabled by modern digital technology.

As is typical of this era of innovation, the obvious solution is to utilize computer programming, and artificial intelligence.  Clearly, the optimal solution is a 17-factor machine learning algorithm, which condenses the nuanced situation of each indebted student loan borrower into a single numerical metric.

According to experts in charge of building this complex model, the analysis could be used continuously moving forward, rather than as a one-time solution.  The true definition of nerdy engineers in the government’s employ talking their well-funded federal entity book.

Meanwhile, the Pew Charitable Trust has put forth an initiative to reform the student loan collections process.  This proposal has 3 core tenants: simplify the paperwork path for income-driven repayment plans, reduce required payment limits for low-income borrowers, and provide more flexibility based on the challenges faced by individual borrowers.  Enacting any or all of these actions could expand the pathways for exiting default, and increase the likelihood that struggling individuals get back on their feet.  [REF]

Looking at secondary education worldwide provides some additional options.  While America is one of the most popular regions of the globe to attend university, it’s not the only nation which provides higher education.

Some European countries, like Germany and Sweden, offer up free tuition, but require attendees to pay their own room and board on a semester-by-semester basis.  In contrast, Great Britain, and its former commonwealth subsidiary Australia, allow loans only for tuition, an audible which has been made recently, to reign in the limited access and inflating costs of secondary education attendance.  Either way, fully free turns into charity.  [REF]

The recent trend in America of younger folks towards trade schools, at-work education, and entrepreneurship are also promising trends.  A 4-year degree at an elite private institution is valuable in many fields, and essential for a few professions, but doesn’t need to be the baseline.  The first few years of college are less about where you are, and more about who you’re with, and what you do, anyways.

Already, roughly half of students complete their undergraduate education without taking any loans.  This is a result of beneficial factors, like earning scholarships and working during summers, along with inequality considerations, like affluent foreign attendees and lucrative familial aid.

Even with today’s exorbitant tuition rates, a clever secondary education strategy, combining high school credit transfers, aggressive scholarship grant pursuit, and lucrative internships can make the debt-free dream a reality.

These tactics, along with broader financial literacy, is the type of education that high school students really need to be successful in their future life pursuits.  The concepts of compound interest, balancing a checkbook, and return on investment analysis are all key elements of the university attendance decision.

Secondary education should clearly be an option, as opposed to an obligation, for future teenagers.  Payment of past education debts incurred by millions of Americans, many still holding large balances decades after exiting school, is a much murkier topic.  Only time will tell how this student loan saga plays out.

Sources:

• Official federal student loan page.  [REF]

• Detailed visual timeline of Democrats student loan forgiveness starting in 2019, before President Biden’s election.  [REF]

• All current viable options for student loan relief as of March 2024. [REF]

• Comprehensive return on investment analysis for different college degrees.  [REF]