Tucked into the U.S. debt ceiling and government spending legislation signed into law by President Joe Biden last week is a guarantee student loan borrowers will have to restart paying down their debt this fall — with no chance for an extension on that payment freeze.
That’s despite Biden’s pledge to wipe away or reduce that debt for millions of Americans, which may be blocked by the U.S. Supreme Court this month.
The convergence of legislative and judicial setbacks for the movement to eliminate student debt has borrowers feeling anxious and abandoned, advocates say.
“This (repayment pause) has been a critical lifeline for tens of millions of student loan borrowers, many of whom would have been in financial ruin if they’d had to make student loan payments,” Persis Yu, deputy executive director of the Student Borrower Protection Center in Washington, told Global News in an interview.
“People aren’t ready to return to repayments.”
About 44 million people in the U.S. have outstanding student loans that total more than US$1.6 trillion, according to the Department of Education.
Repayments were paused during the COVID-19 pandemic, and the deadline for lifting the freeze was extended multiple times by the Biden administration. The most recent extension meant borrowers would have to start paying back their outstanding loans 60 days after June 30.
Hopes that another extension would come were dashed when the debt ceiling deal codified that deadline into law.
Yu says Biden’s student loan cancellation program was supposed to help ease borrowers back into repaying their debt. The plan, announced last August, would forgive up to US$20,000 in loans and target predominantly low-income Americans, particularly Pell Grant recipients who have already demonstrated “exceptional financial need.”
“We know that when payments turn back on that the debt default and delinquency rates are going to spike,” she said.
“So the administration’s student debt cancellation program was necessary in order to prevent financial distress from turning things back on.”
The Student Debt Crisis Center said in a report this year that the number of student loan borrowers in the U.S. experiencing food insecurity was 61-per cent higher than the national average between 2020 and 2022 — a period of time that saw a 17-per cent rise in borrowers unable to afford their rent.
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Data from the U.S. Consumer Protection Bureau shows missed payments by student loan borrowers on other forms of debt, like credit cards, shot up during the COVID-19 pandemic and as inflation began to rise.
“If this rising delinquency trend doesn’t change, more borrowers may struggle as they face additional payments each month,” the agency wrote, adding the student debt cancellation program would help distressed borrowers when repayments begin.
But the debt relief plan faced a quick Republican backlash and was blocked by lower courts, sending the case to the Supreme Court for a final determination. By the time the high court heard arguments in late February, the White House said over 26 million borrowers had applied for relief.
During that hearing, conservative justices focused on the cost of the plan — roughly half a trillion dollars U.S. — and on whether the Biden administration had the proper authority to approve such a plan, rather than Congress.
The administration has cited the national emergency created by the pandemic as authority for the debt relief program under a law commonly known as the HEROES Act.
A Republican measure overturning Biden’s student loan cancellation plan passed the Senate last week with help from a few centrist Democrats, but Biden vetoed the bill Wednesday. Yu says that vote, following approval in the House earlier this year, was an insult to struggling borrowers.
“Those senators and representatives voted against the actual financial interests of their constituents,” she said. “We estimate this will push hundreds of thousands of borrowers into more debt — that’s what they voted for.”
Critics of the relief plan — mostly Republicans — have argued eliminating student debt is an unfair burden on taxpayers who didn’t attend college or already paid off their loans, with many lawmakers pointing to how they paid off their own debt with hard work.
But Yu and other advocates say the latter argument doesn’t take into account how college tuition costs have skyrocketed.
Between 1963 and 2020, the average tuition cost has more than tripled to nearly US$13,700 for a full multi-year program, according to the National Center for Education Statistics, which accounts for inflation. That number is up 69 per cent from just 20 years before.
As costs have gone up, so has the debt load for borrowers. The collective amount of outstanding loans has risen 70 per cent in the last 10 years, despite the number of borrowers only increasing 13 per cent over the same time period.
“We do not have an educational system that is accessible and affordable to everyday working-class folks,” Yu said. “And right now there really is no alternative for many people to go to get an education without taking on debt. That system is fundamentally different than when a lot of folks in Congress went to school.”
About seven million borrowers are below the age of 25, according to data from the Education Department. Their average loan balance is less than US$14,000, lower than any other age group.
At least half of all borrowers still owing money on their loans are Black.
Yet advocates say those borrowers with lower balances are most likely to default, having dropped out before graduating and incurring more debt and then struggle to find good jobs that will help with repayments. Among those who defaulted in 2021, the median loan balance was US$15,300, and the vast majority had balances under US$40,000, according to the Federal Reserve Bank of New York.
Resuming student loan payments will cost U.S. consumers US$18 billion a month, the investment firm Jefferies has estimated. The hit to household budgets is ill-timed for the overall economy, Jefferies says, because the United States is widely believed to be on the brink of a recession.
The White House has not indicated whether it has a back-up plan in place if the Supreme Court strikes down the debt relief program. And Yu says borrowers don’t believe the court will side with their interests, adding to their frustration.
“There’s a lot of anxiety,” she said.
—with files from the Associated Press
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