The Supreme Court is expected to decide any day now whether to block President Biden’s plan to forgive up to $10,000 or $20,000 of federal student debt for more than 40 million Americans, including nearly 20 million who could have their balances wiped out.
But the Supreme Court isn’t what is making 39-year-old Michael Kilman, a Denver father of four (a nine-year-old and three teenagers), most anxious. Like many others with high balances, he’s more worried about the pending resumption of his payments this fall.
“It affects everything, it affects even the things I do with my children and the fact that I may never be able to own a house,” he says. “Everybody you talk to who has significant student loans says the same thing, that these loans are kind of like this big weight that we carry around our necks that prevent us from actually doing well.”
Kilman took out $88,000 in student loans during his journey through higher ed, which started in community college and culminated with a master’s degree in applied anthropology from Portland State University in 2014. He racked up most of that debt during graduate school, where the amount students can borrow from Uncle Sam is far greater. Since then, he’s earned a modest income as an adjunct professor and freelance digital media creator, supplemented, when needed, by other odd jobs. (He’s now also driving for DoorDash.)
“I’ve never really been in a position where I made enough money to pay my full monthly payments on loans, I’ve always had to defer it in one way or another,’’ Kilman says. That meant his loan balance, including interest, kept growing—to $177,000 in March 2020.
That’s when President Donald Trump slapped an emergency Covid-19 moratorium on federal student loan repayments–and, crucially, the accumulation of interest. That pandemic relief was extended by Congress and then President Joe Biden. Now, as enshrined in the debt ceiling deal passed this month, the moratorium ends as of September 1, with payments resuming some time in October.
To borrowers with stories similar to Kilman’s, the biggest fear is not what the Supreme Court will decide—it’s the thought of returning to the financial restraints and worries they knew before the pandemic. The situation is particularly stressful for those who have little chance of paying down their balances. Kilman vividly compares his situation to walking on a treadmill for hours and never actually reaching any destination, or going to the desert and digging a hole only for more sand to continue to fall in and land you back where you started.
“[If] you resume these payments, you’re gonna cause major crisis for millions of American families,” says Kilman.
A new Consumer Financial Protection Board study of the current financial condition of those with student debt sounds a similar alarm; it estimates that 18.5% of all borrowers, and nearly 25% of those who owe $50,000 or more have two or more risk factors “that suggest they could struggle when scheduled payments resume.”
According to the latest data from the Department of Education, 3.5 million Americans have direct student loan balances of $100,000 or more, while another 8.4 million owe more than $40,000, but less than $100,000. Some of those high dollar debtors have medical, law or other graduate degrees that will one day bring them high salaries more than sufficient to pay off their debt–and live well.
But another fast-growing group of high balance debtors are those–like Kilman–who took on big debt to earn master’s degrees in lower paying career fields, most notably needed specialties such as social work and mental health counseling. Researchers at the Urban Institute calculate that graduate loans made up nearly half of federal student debt in 2017, up from less than a third in 1995. That reflects not only the greater (and more diverse) group of students earning graduate degrees since the Federal Government raised borrowing limits for grad school in the mid-2000s, but also the way that schools have exploited that borrowing power. Between 1999 and 2017, Urban researchers report, the average net tuition and fees (after grant aid) for master’s students rose 79% in real terms (meaning after adjusting for inflation). By contrast, net tuition and fees for bachelor’s degrees rose only 47%.
This isn’t one of those problems associated primarily with for-profit schools, which enroll 10% of all students, but account for half of all loan defaults. This is a burden created by a different set of institutions. According to an Urban analysis which looked at the average debt of a master’s program’s students at graduation, compared to their average earnings two years after graduation, private non-profit universities offer just 44% of master’s programs, but account for three quarters of the programs with the highest ratio of debt to earnings.
Just how widespread is the problem? An Urban report released last December found that 23% of master’s programs produce graduates with debt equal to 100% or more of their earnings after two years, which is considered a high ratio. At the most extreme, 7% of programs have very high ratios–average debt of $80,875 and median earnings of $41,097.
Students caught in the disconnect between the amount they owe and the amount they earn are increasingly using the government’s income-driven repayment (IDR) programs, which are designed to make payments more affordable, but can drag out those payments for up to 25 years for those who have graduate school debt.
True, those who work full-time for government and not-for-profits can make income-based payments and theoretically qualify for Public Service Loan Forgiveness in 10 years. (PSLF has a troubled history that the Biden Administration has been working to fix.) But Kilman’s job as an adjunct professor at Portland State never qualified him for the speeded up loan forgiveness. “We are fortified temp workers,” he says of the plight of adjuncts. “Every semester, every quarter, your income can change.” Before the student loan repayment moratorium, he says, he even relied on food stamps to keep his family afloat. (That’s not unusual; according to a 2020 survey by the American Federation of Teachers, a fourth of adjuncts have relied on public assistance programs.)
Along with the $10,000/$20,000 loan forgiveness program now before the Supreme Court, the Biden Administration has been working on other initiatives designed to help those with no hope of ever paying off their student loans. In January it proposed a revamp of the IDR plan known as REPAYE. Those with solely undergraduate loans would only have to pay 5% of their “discretionary” income (half the current REPAYE percentage), which, along with a redefinition of discretionary income, would decrease monthly payments by more than half, putting them on a more attainable path to loan forgiveness. But those with graduate-only debt would still have to pay 10%. (Those, like Kilman, with both kinds of debt, would have their percentage of income calculated based on their percentage of debt that comes from grad school.) Borrowers with any graduate debt would continue to have to pay under REPAYE for 25 years–unless they qualify for public service loan forgiveness in 10 years.
Conservative groups are already arguing that such a costly administrative rewrite of the REPAYE program violates federal law, meaning that that Biden proposal, too, could be delayed or blocked by the courts–or by the results of the 2024 election.
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