Student loan payments are back, a reality that’s changing many household budgets. But is there student loan forgiveness in the future?
You might think that borrowers with low credit scores would have the largest monthly payments because they face higher interest rates, but when it comes to student loans that’s not the case. According to Equifax, in December 2023 student borrowers with credit in the “deep subprime” category typically paid $284 per month while “super-prime” borrowers paid $334 per month.
In other words, regardless of financial standing, there’s a lot of student debt and it impacts both low-income and middle-income households.
Unmet Expectations
There are several likely reasons for bigger monthly payments with super-prime borrowers. They may have gone to more expensive schools or obtained additional degrees. The result is more outstanding debt and thus higher monthly payments.
But there’s another reason for so much outstanding student debt – $1.6 trillion – and so many delinquencies.
When required monthly payments restarted in November 2023, about 8.8 million federal loans went unpaid. That’s roughly 40% of the 22 million borrowers who owed money.
Why so many delinquencies? Simply put, many college investments have not panned out. A 2024 study by The HEA Group found that more than a quarter of college programs graduated a majority of students making no more than $32,000 per year.
Out of 3,887 institutions, said the HEA report, “over a thousand institutions (1,022) show the majority of their students failing to earn as much as a typical high school graduate 10 years after they’ve enrolled.”
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Student Loans & Other Debt
If student loans were the only monthly debts paid by borrowers they would likely be readily affordable. But again, that’s not the case. For example, in December, 81% of the super-prime borrowers with auto financing were also paying student debt.
Among deep subprime borrowers, 20% of those with auto debt also have student loan payments.
In other words, student debt is a burden by itself, but in combination with other debt it’s particularly difficult for many households. This is especially true in cases where individuals have student debt and did not complete degree programs or where a college education has not produced the expected income.
The Fight for Student Loan Forgiveness
Under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) the Biden Administration tried to cancel student debt worth $430 billion – about a quarter of all the outstanding debt.
The Biden plan, reported by The New York Times in 2022, “would cancel $10,000 in debt for those earning less than $125,000 per year and $20,000 for those who had received Pell grants for low-income families.”
As with any major program, the proposal stirred debate. In June 2023 the Supreme Court ruled that while the HEROES Act did allow the government to “waive or modify” student loans, the very size of the cancellation program meant it had to be specifically approved by Congress.
The result of the Court decision was that required student loan repayments – which had been stopped during the pandemic — restarted in the fall.
Despite the Supreme Court setback, the Biden Administration continues to waive and modify student loans.
In February 2024 it announced that it had approved “$1.2 billion in student debt cancellation for almost 153,000 borrowers currently enrolled in the Saving on a Valuable Education (SAVE) repayment plan.” It also said that it had approved “nearly $138 billion in student debt cancellation for almost 3.9 million borrowers through more than two dozen executive actions. The borrowers receiving relief are the first to benefit from a SAVE plan policy that provides debt forgiveness to borrowers who have been in repayment after as little as 10 years and took out $12,000 or less in student loans.”
Will there be more cancellations and payment reductions going forward?
Certainly there will be continued efforts to reduce the number of federal student debtors, the amounts owed, and required payments. But larger efforts will require congressional approval.
In an election year and with the major parties closely divided on Capitol Hill, passage of such legislation will be difficult at best. Meanwhile, student borrowers should keep an eye on the news to see if any new debt reduction programs open up.