Remedies offered so far would do little to address inequities that are part of the student loan repayment crisis. One such inequity is tied to the U.S. racial wealth gap. In the U.S., 86% of Black students are taking out loans compared to 68% of white students. Black students owe, on average, nearly $10,000 more in loans. When wealth is assessed, Black households make up 2.9% of overall wealth in the U.S., while 86.8% of the overall wealth is held by white households. Diversity in home and business ownership is also directly affected.
Now that the moratorium on federal student loan payments ended in August, interest on these loans began accruing again on Sept. 1, with payments due to resume Oct. 1. When faced with the Sisyphean burden of making payments each year on a loan with interest that accrues at a rate far outpacing wage increases, borrowers are feeling anxious and are likely to fall even more deeply into debt. For many borrowers who paid off their principal balance but still owe roughly the same amount or more in interest payments, the Supreme Court’s rejection of President Joe Biden’s plan for $20,000 in student loan forgiveness only adds to the stress.
With Baltimore being a majority-Black city and Maryland borrowers averaging $42,666 in student loan debt — the second highest of any state — the student loan debt crisis has a particularly disparate and inevitable impact. The passage of the Maryland Financial Consumer Protection Act of 2018 established a student loan ombudsman, and the state created an office where borrowers can submit complaints regarding student loan servicing.
The ombudsman acts as a liaison between the borrower and service provider and has the authority to refer any violations to the Office of Financial Regulation or to the Maryland Office of the Attorney General. The other state-offered resource is the Student Loan Debt Relief Tax Credit, allowing Maryland borrowers with a minimum of $20,000 student loan debt and an outstanding balance of at least $5,000 to apply for a tax credit.
At the federal level, a new income-driven repayment plan has been proposed that reduces monthly payments and waives added interest fees. The updated IDR improves upon past iterations and automatically rolls previous plans into the new Saving on a Valuable Education plan. Under the SAVE plan, payments on undergraduate loans will be reduced from 10% to 5% of borrowers’ discretionary income. Borrowers who have undergraduate and graduate loans will pay between 5% and 10% of their income, weighted based on the original principal balances. The timeline for forgiveness is 10 years for low-balance undergraduate loans less than $12,000, 20 years for undergraduate loans exceeding $12,000 and 25 years for graduate loans.
Another option resulting from recent changes in bankruptcy law has eased the eligibility guidelines for discharging student loans. While still not a simple or straightforward path, borrowers meeting one or more of the following criteria may have a means of freeing themselves from student loan debt — if the borrower is 65 or older; has a disability or chronic illness; has been unemployed for five of the last 10 years; has a loan status listed other than “in school”; has made good faith efforts to engage with loan servicers; or has failed to obtain their desired degree.
While the measures taken thus far by the federal government may alleviate the burden of student loans for some borrowers, many millions of Americans will remain unaffected by these changes. For borrowers who are under 65, not disabled, have gainful employment and have an even remotely comfortable income relative to their family size, the impact of these changes will be negligible at best. Unsurprisingly, the government has failed to address the racial inequities of the student loan crisis, which are unfortunately embedded in nearly every aspect of consumer issues in the U.S.
The crisis itself is a culmination of decades of ballooning education costs, degree inflation in the labor market, declining federal and state education funding, declining currency and degree values and wage stagnation. The cost of college attendance has grown 6.8% annually, which is faster than both currency inflation and wage inflation, by 196.2% and 89.2% respectively. While many borrowers may not fully understand the terms of their loans or how to calculate compounding or capitalized interest, the growth of tuition rates compared to currency and wage inflation provides some explanation of how this became the crisis we face today.
The individual borrower does not bear the detriment of this crisis alone. It extends into nearly every facet of American life. The suffocating stress of debt can greatly affect one’s mental health and ultimately their physical health. Borrowers are being routinely priced out of homeownership, business ownership and consumer spending trends. This crisis will continue to damage our public health, housing and economic systems well into the future, with the effects not being fully realized for years to come.
Fortunately, in a growing trend, prospective students can benefit from limited free community college programs in about half of the states. Tuition rates and degree inflation are also finally showing signs of slowing, with a 1.7% decrease in tuition and fees between the 2020-21 and 2021-22 school years for private, four-year schools, as well as a measurable decrease in job postings requiring college degrees. While these factors are a good start to address the issue going forward, they are insufficient to address the harm that has already been done.
In the absence of any substantive government action, such as a free four-year university education, retroactive dismissal of interest fees, inclusion of practical financial education in grade school or total student loan forgiveness, we will just have to wait and see how beneficial the new SAVE plan will be for borrowers and remain hopeful that significant change is still yet to come.
Ian Williams is a consumer protection paralegal at the Maryland Volunteer Lawyers Service, which assists clients seeking pro bono civil legal services — many of whom also are experiencing the impact of unrelenting student loan debt.