Conversations about student debt often focus on the cumulative debt held by borrowers, what many call the “student debt crisis”. At $ 1.6 trillion, it’s not hard to imagine why that number seems overwhelming to many. We could see student debt increase at a higher than normal rate over the next few months. But don’t panic, it might not be as bad as it looks.
Cumulative student debt is expected to grow at an above-average rate in the coming months due to legislation recently passed by Congress. If and when it increases, we should not be alarmed.
The CARES law was enacted to deal with the fallout from the coronavirus and suspended student debt payments for about 6 months for most federal loan borrowers. Other actions have helped student private borrowers, as well as some other federal student loans this were not addressed in the CARES law.
So while some borrowers are still likely to make payments, far fewer do and therefore fail to repay their loans. In addition, the fact that students will borrow to pursue higher education this summer and this fall, there is no doubt that the cumulative balance of student debt will increase. (Some predict that higher education enrollments will be drop this fall because of the virus, so it may not increase as much.)
While balances may not go down, Congressional actions will have prevented thousands, if not millions, of student loan borrowers from missing payments, being hit by late fees, and accumulating more interest. on their loans. So while borrowers may not necessarily make progress on their loans, they don’t go deeper into debt or negatively impact credit.
Borrowers have been shielded from further financial stress during this pandemic because of the actions of Congress. They could have accrued interest and gotten little relief.
However, there are a few reasons for concern. While borrowers will not pay interest for their non-payment during this time, costs could increase for student borrowers over the fall and year to come. The economy is in a shaky state and many predict it will get worse. If the economy falls into a recession – or worse, a depression – higher education could become much more expensive.
Recessions weigh on state budgets, forcing them to make cuts. And often higher education is the first casualty because, unlike expenses like Medicaid and prisons, colleges and universities can shift those costs to students and families in tuition and fees. And the federal government is ensuring families have access to loans to attend. During the Great Recession we saw this unfold and students and families literally paid the price.
Many states still have not reinvested in higher education, which already makes it too expensive for many borrowers. Now, the economic fallout from the coronavirus has already strained state budgets and it is likely to get worse. If states are forced to cut further, it will mean higher costs, and therefore debt, for American students.
Worse yet, rising costs could mean low- and middle-income students could be denied access to college in the first place. The value proposition of a college degree pays off for most low-income students when they graduate. But if they are billed up front, it can deprive them of the opportunity to find a well-paying job and often leave them in poverty.
With many people in fragile economic circumstances, it is essential that needs-based aid programs like the Pell Grant are adequately funded to ensure access to higher education and affordability, especially for the most affluent. vulnerable. Those worried about student debt would do well to focus on the affordability of college education this fall and next year. Otherwise, too many students will never reap the many benefits of a college degree.