Many Student Borrowers Played By The Rules, But Their Debts Only Grew

by | Sep 10, 2022 | Politics

WASHINGTON — Opponents of President Joe Biden’s plan to cancel up to $20,000 of student debt for millions of borrowers say it’s unfair to people diligently paying off their college loans.Sen. Joe Manchin (D-W.Va.), for example, called the relief “excessive” and said people should have to “earn it.” But for many, making regular payments hasn’t guaranteed that a loan would ever get paid off.Research published last month by the New York Federal Reserve Bank shows that every year since 2004, millions of student borrowers who were current on their loans nevertheless had flat or even growing balances. Fewer current borrowers had shrinking balances.AdvertisementAt the end of 2019, for instance — before then-President Donald Trump paused student loan payments — only 37.1% of borrowers had a decreasing balance, while 48% had a flat or increasing balance, according to the New York Fed data. An additional 15% were delinquent or defaulted. (The pause pushed more borrowers into the flat or increasing balance category at the end of last year, while fewer were in default.)Reasons for rising balances include forbearance periods, in which a borrower isn’t required to make payments, and income-based payment plans with low monthly payments that don’t cover interest. In both cases, interest still accrues and gets tacked on to the loan’s principal. The federal government has encouraged struggling borrowers to pursue both options.As many as 20 million student debtors could see their loan balances completely vanish under Biden’s initiative. Altogether, as many as 43 million could at least partially benefit. The program hasn’t started yet, but the administration has told borrowers to sign up for email notifications.But even before the president announced the debt relief, a significant number of student borrowers were on repayment plans that not only limit monthly payments to a percentage of their income, but also automatically forgive any remaining debt after 20 or 25 years — meaning millions of people would have had their debt canceled eventually, even if Biden had done nothing. Advertisement“Student loans aren’t going to be paid back anyway, so all of this talk about cancellation is out of touch with reality,” said Marshall Steinbaum, a student loan expert and associate professor at The University of Utah.The economist’s own research from 2020 showed that in each year since 2008, majorities of borrowers who took out loans had wound up with larger balances than they started with.The share of loans with a higher current balance than initial balance rose each year from 2009 to 2019.Marshall SteinbaumSteinbaum has likened the combined $1.6 trillion in student loan debt to water filling a bathtub. The …

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