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Chaos and Confusion: The State of Student Loans

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Chaos: the word experts chose time and again to describe the current state of student debt relief efforts and loan repayment. Since President Biden’s first attempt to clean the slate for millions of student borrowers was struck down by the U.S. Supreme Court in June 2023, each subsequent effort has encountered lawsuits and judicial rulings that have diluted or negated aspects of the plans with impacts varying depending on location.

“It’s been an incredibly challenging and chaotic year in student loan space,” said Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center, a nonprofit organization working to eliminate student debt. “It’s been incredibly hard for borrowers to get good, accurate information.”

Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center.Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center.It’s not just legal rulings, which contribute to the sense of chaos. Servicers who previously administered loans have changed. MOHELA, a service company contracted to manage loan repayment, has taken on three times their number of usual clients, said Yu. January’s end of the three-and-a-half-year pandemic-era payment pause, plus record high inflation, has left many borrowers unprepared to begin payments again. The gentle on-ramp to repayment the administration provided is expected to end in September.

The past year’s chaos and future confusion is the consequence of the highly politicized nature of higher education and its components, experts agreed. Those who remain most impacted by these decisions are the borrowers themselves.

As of December 2023, 43.2 million Americans have student loan debt, according to the Federal Student Aid office. The national balance is more than $1.6 trillion. The debt burden is not distributed equally among students.

A May 2024 report by the Education Data Initiative found that four years after graduation, Black borrowers owe an average of 188% more than white borrowers and hold an average of $53,000 in debt.

“Several years down the road, we might find some people navigated this unfortunately, through no fault of their own but the confusion the system has created in this situation,” said Dr. Nicholas Hillman, professor in the School of Education at the University of Wisconsin-Madison and coauthor of Understanding Student Debt: Who Borrows, the Consequences of Borrowing, and the Implications for Federal Policy.

The most recent court rulings in Missouri and Kansas have stayed the loan forgiving power of Biden’s Saving on a Valuable Education (SAVE) plan, an income-driven repayment (IDR) plan aimed at reducing borrowers’ payments from 10% of their income to 5% and forgive loans after 10 years of payments. At the moment, eight million borrowers have enrolled in SAVE, but Missouri’s ruling has capped the SAVE plan and prevented any additional loan cancellation.

Currently, 18 states have challenged SAVE. These challenges are likely to produce more confusion for borrowers, said Dr. Robert Kelchen, professor and head of the Department of Educational Leadership and Policy Studies at the University of Tennessee, Knoxville, as locality and state-residency could narrow or expand one’s options for student repayment plans, and could easily change from one month to the next.

“What’s happening at the moment is temporary injunctions, which makes communicating more difficult, because [these injunctions] happen quickly and could be undone by action by the whole court or by appeal,” said Kelchen. “There’s going to be a lot of localized policymaking until everything careens to potentially the Supreme Court, but the challenge then is that they only have bandwidth to take up so many cases. While some are important issues, they may not be able to rule on them, so it’s done by circuit court, or we see patchworks take place, until we’re able to get legislation.”

Dr. Nicholas Hillman, professor in the School of Education at the University of Wisconsin-Madison.Dr. Nicholas Hillman, professor in the School of Education at the University of Wisconsin-Madison.Adding further complication, the U.S. Supreme Court made one of its most significant rulings at the end of June, which eliminated a legal precedent known as the “Chevron deference.”

“The Chevron doctrine, or deference, basically says, ‘When there’s unclear or ambiguous language in legislation, we can’t expect legislators to have all the details worked out. They have to leave grey area for practitioners, for people implementing policies,’” said Hillman. “That’s no more.”

This decision, said Hillman, has opened the door to even more lawsuits against federal agencies like the U.S. Department of Education. Kelchen agreed, adding that it might not just be Biden’s SAVE plan that could be affected, but all other types of student loan repayment plans.

Kelchen offered simple advice for student borrowers who feel unsure how to prepare to make payments in the next few months — plan for the worst while hoping for best.

“Prepare for the least generous payment plan possible: the standard payment plan, over 10 years, without income driven repayment,” said Kelchen. “For now, Public Service Loan Forgiveness in some form is likely safe, because that was passed through an act of congress. But again, the terms could change. I think the safest thing to do is basically prepare to make the largest payment that you possibly could under any existing policies.”

For Yu, these lawsuits and injunctions all seem part of a larger puzzle which could limit the opportunities presented by higher education.

“I think this does tie back in some ways to a bigger story about how education has itself become politicized,” said Yu. “I do think there is a broader story to be told here about who gets to access education, and what is the price you have to pay, if you have the audacity to want to access an education, and you’re not someone with means.”

Liann Herder can be reached at [email protected].

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