Paying for college inevitably focuses on student loans in terms of news. The statistics are staggering. As the Covid-era repayment relief is scheduled to come to an end on August 31, most of the recent headlines are about loan forgiveness announcements. Also covered are stories about parents’ financial situation, and an update on ISAs.

Student Loan Landscape

Here are some key student loan debt statistics (5/2022) (BankRate.com)

• 43.4 million Americans have federal student debt.
• In total, the U.S. has $1.76 trillion in outstanding student debt.
• The average undergraduate borrower has $28,400 in student loan debt.
• Student loans are the second-largest type of consumer debt, falling behind mortgage debt.

Nerdwallet provides an excellent breakdown of outstanding student debt by many characteristics, like by type of degree/school, by source, by age, by status in terms of repayment, student loan forgiveness, loan defaults, income-driven repayment and FAFSA completion.  

The pause on student loan payments and interest is scheduled to end on August 31, 2022. (www.ed.gov)

Schools with large endowments are stepping away from including student loans as part of the need-based aid package, and replacing them with additional grants and scholarships.  Dartmouth is the latest to announce this practice. (CNN)

Student Loan Forgiveness

There were two major loan forgiveness announcements in recent weeks, each worth about $6 billion. One gave 580,000 borrowers who had attended Corinthian Colleges and a few other institutions total relief of their debt as the Biden administration revived the borrower defense program. The borrower defense repayment program was started under the Obama administration at a time when both state and federal governments were cracking down on for-profit institutions for consumer fraud. Under the Trump administration, hundreds of thousands of claims under this program stacked up, and 128,000 were denied. This past week, a settlement was reached granting relief to those waiting and to those that had been denied, a total of about 200,000, as part of a class action suit against over 150 institutions who had been found to have defrauded students. Debt will be wiped out for these people. (CNBC) (NYT) (NYT2)

And the Public Service Student Loan Forgiveness program has also been given an overhaul. Roughly 9 million borrowers could qualify for forgiveness under this program, yet fewer than 150,000 have applied and only 130,000 have had their outstanding debt forgiven. Only 15% of those eligible have registered for the program, so that their employment and payments can be tracked over the ten year period required for forgiveness. (Forbes-four free articles per month)

The debate still continues on whether or not the current administration will grant any more general student loan forgiveness. One amount mentioned often is $10,000, an amount that would mostly help people who never graduated, and therefore are not likely seeing the economic benefit in their earnings. (CNBC)

"The default rate among borrowers who leave with student debt but no degree is three times higher than the rate for borrowers who have a diploma."

But many are advocating for $50,000 of forgiveness. Proponents argue that this level would go a long way to decreasing inequality, and help most of the borrowers already in default. They argue that wealthier people either did not borrow, or paid down their debt already. (Forbes-four free articles per month)

How many people would get relief? Here is the breakdown:

• $50,000 of student loan forgiveness:30 million borrowers would have no student loan debt.
• $40,000 of student loan forgiveness:28 million borrowers would have no student loan debt.
• $30,000 of student loan forgiveness:24 million borrowers would have no student loan debt.
• $20,000 of student loan forgiveness:20 million borrowers would have no student loan debt.
• $10,000 of student loan forgiveness:13 million borrowers would have no student loan debt.

Parents

How are parents managing to pay for their children’s college education? Not very well, apparently. Fifty percent of parents with college-bound children have saved less than $15,000. (BusinessWire) So how are they managing? According to a recent College Ave Student Loan survey, this is how they are paying for college. (PRNewswire)

An Inside Higher Education article reports on findings of a study by the Century Foundation. The study concluded that in particular, Parent Plus loans exacerbate the racial wealth gap. 3.7 million people have Parent Plus loans totaling $107 billion. The average Parent Plus debt is $29,600 at graduation, but given the high interest rate, 55% of the balance remains after 10 years.

"The Century Foundation study found that 42 percent of Black Parent PLUS borrowers are low income and low wealth, compared to 26 percent of Latino and 8 percent of white borrowers. As a result, Black borrowers struggle to repay such debt, further contributing to the racial wealth gap."

ISAs in the News

Purdue stopped offering its income-share agreement (ISA) program established in 2016. The stated reason for the pause was a change in vendor, but critics who consider these programs to be predatory are hoping it is a sign they may be ending. ISA providers claimed these innovative agreements were not really loans, and provided families an option to Parent Plus loans, but the Department of Education declared that they are indeed private loans back in March. (Inside Higher Ed1)

“The Education Department acted after the Consumer Financial Protection Bureau in September issued a consent order against a student loan originator for misleading borrowers about ISAs, failing to provide required disclosures and violating the prohibition against prepayment penalties for private education loans. The CFPB concluded in its order that a student loan originator’s ISAs are private education loans. Additionally, in January, the CFPB updated its examination procedures for private student lending to explicitly reference ISAs. The Education Department’s action this week essentially applies that ruling to all providers of ISAs in higher education.” (Inside Higher Ed2)

About the Author

Beth Tallman

Beth Tallman entered the working world armed with an MBA in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducts student workshops, and develops finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.

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