What Pain Will a New Wave of Student Loan Payments Bring?

This summer, the Supreme Court struck down President Biden’s debt relief plan. The resumption of payments this month after a three-year hiatus, which briefly illuminated the possibility of debt forgiveness for millions of Americans, arrives at a time when the cost of living has risen sharply, interest rates are higher than they’ve been in years and the average American household is carrying an estimated $10,000 in credit card debt.

Mr. Biden’s original loan forgiveness plan leaned on the Higher Education Relief Opportunities for Students Act of 2003. That law allows the education secretary to waive or modify loan provisions in order to shield citizens from unfairly shouldering the economic fallout during a national emergency, like the Covid pandemic. The president’s second attempt at student loan cancellation began moving forward last week, with a hearing to negotiate the details of a new plan.

His administration can craft more robust changes that could affect student loan borrowers now and into the future, even if those changes could take months, if not years, to hammer out. But the new effort no longer addresses the unfair burdens of the pandemic.

For workers who lost wages, the pandemic has introduced the economic equivalent of long Covid: They haven’t recovered from the financially devastating blows of this virus. For people like me, whose wages remained steady, reduced monthly expenses from commuting, dining and travel, along with the pause on federal loan payments, boosted our savings.

But while we were saving, people who relied on tips and commissions, particularly in affluent areas, saw steep drops in pay. Many were sent home with inadequate assistance, while those of us working from home tried our hand at homemade bread and D.I.Y. haircuts. Three and a half years later, many of those workers have yet to bounce back from the compounded mix of lost income and escalating debts.

Consider my friend, whose name I am not disclosing because he wishes to keep his financial struggles private. Before the pandemic, he earned nearly six figures a year working for a luxury car company. While he still had student loan debt, he had paid off his credit cards, improved his credit score and was beginning to build up some savings — an impressive feat for someone raised on public assistance in the West Bronx.

My friend embodied the promise of publicly funded higher education. Despite dropping out of an underfunded public high school, he eventually obtained his G.E.D., enrolled in community college and later transferred to a four-year state university. But he could afford to graduate only if he took out student loans, and even then, he still had to work to make ends meet. He was hesitant to take on debt, but he trusted the college loan officer’s assurances that they would eventually pay for themselves.

The reality has fallen short of that promise. He’s been on an income-based payment plan for over a decade, but his balance has barely budged. That’s because student loan balances can increase over time, particularly if people are on an income-adjusted plan or need to go into forbearance, in which interest continues to accrue.

He slowly came to suspect what research now confirms: that he might never pay off his debt. And he is not alone. In 2020 over 60 percent of outstanding student loans had higher balances than when they were issued.

Then the pandemic hit. People didn’t think of my friend when they applauded essential workers every night. Yet the sale and repair of luxury vehicles was deemed essential work, forcing him back to the office before vaccines were developed, while the sounds of sirens filled the otherwise empty streets.

His employer received payroll assistance through the Paycheck Protection Program. But since his salary was commission based, his earnings plummeted. The meager savings he had worked so hard to accumulate evaporated, and suddenly he found himself buying groceries on credit. Meanwhile, car dealerships saw their profits surge, especially in the luxury car market, in which buyers experienced windfalls from reduced spending and stock market gains.

A 2020 study by the Pew Research Center found that 42 percent of Americans reported that they or someone in their household faced layoffs or pay cuts because of the coronavirus outbreak. Even many of those who continued working face a mix of lost income and mounting debts.

And it’s about to get worse. My friend told me that he cannot even begin to fathom what he’s going to do now that the moratorium on student loan payments is over and he has to pay them — with interest — again. He resents that corporate giants benefited from pandemic relief while enjoying huge profits. If their financial burdens could be eased, why not his?

In a cruel twist, his student loan payments are due again just as his daughter entertains her own college dreams. As he scrambles to help her pay her application fees, he wonders if he is only perpetuating the cycle of debt. His story haunted me as I opened an email from my student loan provider. After 15 years of teaching at public universities and two years of navigating federal bureaucracy, I learned that my loans were forgiven, thanks to a recent expansion of the Public Service Loan Forgiveness program.

While the letter portrayed this as a generous recognition of my service, I realized that over 15 years, I had paid the full borrowed sum and more. I had done everything “right”: borrowed responsibly, paid diligently and consolidated during historically low interest rates. But my balance had barely budged.

While I’m grateful for the program that canceled my debt, I’m troubled that it is so selective. Why should low-income students, reliant on financial aid for college, be burdened with a lifetime of debt? And what about those who sacrificed during the pandemic, seeing their paychecks evaporate and their debt balloon?

A targeted relief program focused on those who lost their savings in the pandemic could help people like my friend get back on track. More effectively regulating interest rates, offering relief to those who have overpaid because of compounded interest and developing a program similar to Public Service Loan Forgiveness to address pandemic debt would be crucial steps forward.

The Biden administration has already started to quietly reform the student loan system by creating an income-driven repayment plan, canceling the debt of people who went to predatory colleges and expanding the Public Service Loan Forgiveness program. But we need more than reform; we need a true transformation. My friend, his daughter and countless others deserve the chance to pursue their dreams without being saddled with a lifetime of debt.

Yarimar Bonilla, a contributing Opinion writer, is the author and editor of several books, including “Non-Sovereign Futures: French Caribbean Politics in the Wake of Disenchantment” and “Aftershocks of Disaster: Puerto Rico Before and After the Storm.”

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