Snowballing This Summer

By the end of 2020, the overall student debt in the United States had ballooned to more than $1.7 trillion, a 100 percent increase since 2010. During the pandemic, federal assistance halted interest and repayments for most federally owned student loans, providing relief for millions of students, alumni, and their families. With these protections set to expire at the end of September and unemployment rates still far exceeding pre-pandemic levels, a flurry of reports and policy recommendations released this summer provide a snapshot of a worsening debt crisis that could affect students for decades.

Student Debt Is Increasing Rapidly—Especially for Black Students

• The average student loan debt for students graduating with a bachelor’s degree was $28,950 in 2019.
• This unprecedented level of student debt may get even worse. High school students who graduated in 2021 are expected to accumulate an average of $38,147 in student loan debt by the time they finish a four-year degree, according to recent analysis by NerdWallet.
• Student debt continues to disproportionately affect Black students and their families. While the median income of Black people increased by just 3.5 percent from the 2009 Great Recession to 2019, their student loan debt increased by 31 percent.
• This increase far exceeds the rise in student loan debt accumulated by students who are Asian (19 percent increase), White (19 percent increase), or Latino (23 percent increase).
• Black college students borrow an average of 35 percent more in student loans at public institutions than other students but earn 22 percent less after graduation, according to a recent report by Student Loan Hero.

Federal Loan Assistance Expires in September

• Nearly half of student loan borrowers (49 percent, or more than 22 million people) have student loans in forbearance through federal assistance as the pandemic continues, representing approximately 57 percent of federal student debt, according to research aggregated by EducationData.org.
• The ability to repay loans is a long-term struggle for students who graduated during the pandemic’s economic downturn. The unemployment rate remains well above pre-pandemic levels (6 percent compared with 3.5 percent), and research has shown that workers who graduate during a recession earn less than other employees for the first ten to fifteen years of their careers.

The US Department of Education Often Uses Aggressive Tactics to Get Students to Repay Loans

• Nearly 15 percent of student loans are “in default at any given time,” representing almost 8 percent (more than $124 billion) of all student loan debt, according to data aggregated by EducationData.org.
• In 2015, the Department of Education (DOE) used “involuntary mechanisms” to collect $4.5 billion in defaulted student debt, including $1.3 billion that was withheld from wages and $2.25 billion that was withheld from federal payments such as tax refunds and Social Security payments
• The federal government paid more than $1 billion to external debt collectors in 2014.
• “Public colleges have sent hundreds of thousands of students around the country to private debt collection agencies, and the spiraling debt held there now totals more than half a billion dollars,” writes Meredith Kolodner for the Hechinger Report.
• When students struggle to pay down their debt, the outstanding balance they owe can increase rapidly. “Many universities add late fees to students’ bills, and when debt collectors add another 30 or 40 percent, students can end up owing thousands of dollars more than they did originally,” Kolodner writes.
• Black borrowers are more likely than their peers (75 percent of loans compared with a national average of 60 percent) to see their student loans increase beyond the original balance.
• While the DOE is aggressive in seeking repayments from students, it may take less aggressive actions against colleges and universities. Approximately 1,300 institutions owe the DOE about $1.2 billion, according to a recent report by the National Student Legal Defense Network. Just 4 percent of debt owed by the schools has been repaid.

Should Institutions Be Held Accountable for Student Debt and Earnings?

• Policy analysts at the Brookings Institution recommend examining a potential system for holding institutions and degree programs accountable for student debt, possibly restricting federal student loans for programs that have a poor history of student loan repayment and graduate job earnings.
• According to the Brookings Institution, “approximately 9 percent of all students who leave a higher education program each year (around 670,000) attended programs predicted to have both negative net earnings and loan repayment.”
• Many of these “failing” degree programs are offered at institutions that have alternative “passing” programs that students could take instead.

Policy Recommendations to Support Affordability

• In many states, colleges and universities can legally withhold academic records until students pay off institutional debts.
• A recent report from New America and the State Higher Education Executive Officers Association argues that state and federal governing agencies should stand “with students, not institutions, when it comes to transcript withholding for unpaid debts.”
• The report suggests that more states adopt the model used in California, which “has a simple, clean law that forbids any school from withholding a student’s transcript over an unpaid debt.”
• A recent report from the Institute for Higher Education Policy (IHEP) highlights several institutions with “no loan” policies that help students meet their needs through grants, scholarships, and work-study. However highly selective private colleges and public universities most commonly offer these programs.
• IHEP also recommends several policy actions that state and federal governments can take to make higher education more affordable and slow down the accumulation of debt. These actions include doubling the amount students can receive from Pell Grants, fostering federal-state partnerships to increase affordability, increasing state funding for higher education, and requiring public institutions to increase student aid.