The US Department of Education is holding more than 900,000 student loans that are at least 30 years old. Tens of thousands of these loans originated almost a half-century ago. And it's likely that most of the total balances are the result of interest charges that have accumulated over the decades--from people who can't ever pay back their loans.
Source: US Department of Education
Will these student loans finally be forgiven under the latest Biden
forgiveness plan? Or will the US continue to honor (and bail out) the
rich while punishing generations of the working class for their
mistakes?
The information in this article is part of a larger effort to examine quality of life, disability, and premature death among student loan debtors. Our most recent Freedom of Information requests to the US Department of Education attempt to gather more information.
23-02758-F
The Higher Education Inquirer is asking for the age and cause
of death of the last 100 student loan debtors whose debt was relieved
because of death. The age and cause of death should be listed on the
death certificates sent to the US Department of Education for student
loan relief. (Date Range for Record Search: From 09/09/2022 To
09/09/2023)
23-02747-F
The Higher Education Inquirer is requesting the number of
loans and the dollar amount of loans that have been discharged each year
for the last ten years due to (1) death and (2) disability. If
available, we would also like an estimate of the number of debtors
affected in that decade. (Date Range for Record Search: From
09/08/2013 To 09/08/2023)
From Glen McGhee:
A
study published in the Journal of American College Health[2] reveals
that student loans are associated with negative health outcomes among
college students, including delaying medical care. The study found that
those with student loans are more likely to delay medical, dental, and
mental health care[1].
Another study published in Health Soc Care
Community[4] found that borrowers behind or in collections on student
loans are forgoing healthcare after self-reporting general physical
ill-health. The study's objective examines whether falling behind on
student loans may compound ill-health by deterring people from seeking
healthcare. The results of this study confirm that student loans are
associated with poor health.
A survey conducted by ELVTR[5] found that
54% of respondents say their mental health struggles are directly
related to their student loan debt. Additionally, over 80% of
participants say student loan debt has delayed a major life event for
them.
Another survey conducted by CNBC + Acorns Invest In You[6] found
that more than 60% of borrowers say student loan debt has negatively
affected their mental health.
When
borrowers default on their federal student loans, the U.S. Department
of Education (“Department of Education”) can collect the outstanding
balance through forced collections, including the offset of tax refunds
and Social Security benefits and the garnishment of wages. At the
beginning of the COVID-19 pandemic, the Department of Education paused
collections on defaulted federal student loans.1
This year, collections are set to resume and almost 6 million student
loan borrowers with loans in default will again be subject to the
Department of Education’s forced collection of their tax refunds, wages,
and Social Security benefits.2
Among the borrowers who are likely to experience forced collections are
an estimated 452,000 borrowers ages 62 and older with defaulted loans
who are likely receiving Social Security benefits.3
This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of Social Security benefits.4
It also describes how forced collections can push older borrowers into
poverty, undermining the purpose of the Social Security program.5
Key findings
The
number of Social Security beneficiaries experiencing forced collection
grew by more than 3,000 percent in fewer than 20 years; the count is
likely to grow as the age of student loan borrowers trends older.
Between 2001 and 2019, the number of Social Security beneficiaries
experiencing reduced benefits due to forced collection increased from
approximately 6,200 to 192,300. This exponential growth is likely driven
by older borrowers who make up an increasingly large share of the
federal student loan portfolio. The number of student loan borrowers
ages 62 and older increased by 59 percent from 1.7 million in 2017 to
2.7 million in 2023, compared to a 1 percent decline among borrowers
under the age of 62.
The total amount
of Social Security benefits the Department of Education collected
between 2001 and 2019 through the offset program increased from $16.2
million to $429.7 million. Despite the exponential increase in
collections from Social Security, the majority of money the Department
of Education has collected has been applied to interest and fees and has
not affected borrowers’ principal amount owed. Furthermore, between
2016 and 2019, the Department of the Treasury’s fees alone accounted for
nearly 10 percent of the average borrower’s lost Social Security
benefits.
More than one in three
Social Security recipients with student loans are reliant on Social
Security payments, meaning forced collections could significantly
imperil their financial well-being. Approximately 37 percent of the
1.3 million Social Security beneficiaries with student loans rely on
modest payments, an average monthly benefit of $1,523, for 90 percent of
their income. This population is particularly vulnerable to reduction
in their benefits especially if benefits are offset year-round. In 2019,
the average annual amount collected from individual beneficiaries was
$2,232 ($186 per month).
The physical well-being of half of Social Security beneficiaries with student loans in default may be at risk.
Half of Social Security beneficiaries with student loans in default and
collections skipped a doctor’s visit or did not obtain prescription
medication due to cost.
Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.
Currently, only $750 per month of Social Security income—an amount that
is $400 below the monthly poverty threshold for an individual and has
not been adjusted for inflation since 1996—is protected from forced
collections by statute. Even if the minimum protected income was
adjusted for inflation, beneficiaries would likely still experience
hardship, such as food insecurity and problems paying utility bills. A
higher threshold could protect borrowers against hardship more
effectively. The CFPB found that for 87 percent of student loan
borrowers who receive Social Security, their benefit amount is below 225
percent of the federal poverty level (FPL), an income level at which
people are as likely to experience material hardship as those with
incomes below the federal poverty level.
Large
shares of Social Security beneficiaries affected by forced collections
may be eligible for relief or outright loan cancellation, yet they are
unable to access these benefits, possibly due to insufficient
automation or borrowers’ cognitive and physical decline. As many as
eight in ten Social Security beneficiaries with loans in default may be
eligible to suspend or reduce forced collections due to financial
hardship. Moreover, one in five Social Security beneficiaries may be
eligible for discharge of their loans due to a disability. Yet these
individuals are not accessing such relief because the Department of
Education’s data matching process insufficiently identifies those who
may be eligible.
Taken together,
these findings suggest that the Department of Education’s forced
collections of Social Security benefits increasingly interfere with
Social Security’s longstanding purpose of protecting its beneficiaries
from poverty and financial instability.
Introduction
When
borrowers default on their federal student loans, the Department of
Education can collect the outstanding balance through forced
collections, including the offset of tax refunds and Social Security
benefits, and the garnishment of wages. At the beginning of the COVID-19
pandemic, the Department of Education paused collections on defaulted
federal student loans. This year, collections are set to resume and
almost 6 million student loan borrowers with loans in default will again
be subject to the Department of Education’s forced collection of their
tax refunds, wages, and Social Security benefits.6
Among
the borrowers who are likely to experience the Department of
Education’s renewed forced collections are an estimated 452,000
borrowers with defaulted loans who are ages 62 and older and who are
likely receiving Social Security benefits.7
Congress created the Social Security program in 1935 to provide a basic
level of income that protects insured workers and their families from
poverty due to situations including old age, widowhood, or disability.8
The Social Security Administration calls the program “one of the most
successful anti-poverty programs in our nation's history.”9
In 2022, Social Security lifted over 29 million Americans from poverty,
including retirees, disabled adults, and their spouses and dependents.10
Congress has recognized the importance of securing the value of Social
Security benefits and on several occasions has intervened to protect
them.11
This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of their Social Security
benefits.12
It also describes how the purpose of Social Security is being
increasingly undermined by the limited and deficient options the
Department of Education has to protect Social Security beneficiaries
from poverty and hardship.
The forced collection of Social Security benefits has increased exponentially.
Federal
student loans enter default after 270 days of missed payments and
transfer to the Department of Education’s default collections program
after 360 days. Borrowers with a loan in default face several
consequences: (1) their credit is negatively affected; (2) they lose
eligibility to receive federal student aid while their loans are in
default; (3) they are unable to change repayment plans and request
deferment and forbearance;13 and (4) they face forced collections of tax refunds, Social Security benefits, and wages among other payments.14
To conduct its forced collections of federal payments like tax refunds
and Social Security benefits, the Department of Education relies on a
collection service run by the U.S. Department of the Treasury called the
Treasury Offset Program.15
Between
2001 and 2019, the number of student loan borrowers facing forced
collection of their Social Security benefits increased from at least
6,200 to 192,300.16
That is a more than 3,000 percent increase in fewer than 20 years. By
comparison, the number of borrowers facing forced collections of their
tax refunds increased by about 90 percent from 1.17 million to 2.22
million during the same period.17
This exponential growth of Social Security offsets between 2001 and 2019 is likely driven by multiple factors including:
Older
borrowers accounted for an increasingly large share of the federal
student loan portfolio due to increasing average age of enrollment and
length of time in repayment. Data from the Department of Education
(which is only available since 2017), show that the number of student
loan borrowers ages 62 and older, increased 24 percent from 1.7 million
in 2017 to 2.1 million in 2019, compared to less than 1 percent among
borrowers under the age of 62.18
A larger number of borrowers, especially older borrowers, had loans in default.
Data from the Department of Education show that the number of student
loan borrowers with a defaulted loan increased by 230 percent from 3.8
million in 2006 to 8.8 million in 2019.19 Compounding these trends is the fact that older borrowers are twice as likely to have a loan in default than younger borrowers.20
Due
to these factors, the total amount of Social Security benefits the
Department of Education collected between 2001 and 2019 through the
offset program increased annually from $16.2 million to $429.7 million
(when adjusted for inflation).21
This increase occurred even though the average monthly amount the
Department of Education collected from individual beneficiaries was the
same for most years, at approximately $180 per month.22
Figure 1: Number of Social Security beneficiaries and total amount collected for student loans (2001-2019)
Source: CFPB analysis of public data from U.S. Treasury’s Fiscal Data portal. Amounts are presented in 2024 dollars.
While the total collected from
Social Security benefits has increased exponentially, the majority of
money the Department of Education collected has not been applied to
borrowers’ principal amount owed. Specifically, nearly three-quarters of
the monies the Department of Education collects through offsets is
applied to interest and fees, and not towards paying down principal
balances.23
Between 2016 and 2019, the U.S. Department of the Treasury charged the
Department of Education between $13.12 and $15.00 per Social Security
offset, or approximately between $157.44 and $180 for 12 months of
Social Security offsets per beneficiary with defaulted federal student
loans.24 As a matter of practice, the Department of Education often passes these fees on directly to borrowers.25
Furthermore, these fees accounted for nearly 10 percent of the average
monthly borrower’s lost Social Security benefits which was $183 during
this time.26
Interest and fees not only reduce beneficiaries’ monthly benefits, but
also prolong the period that beneficiaries are likely subject to forced
collections.
Forced collections are compromising Social Security beneficiaries’ financial well-being.
Forced
collection of Social Security benefits affects the financial well-being
of the most vulnerable borrowers and can exacerbate any financial and
health challenges they may already be experiencing. The CFPB’s analysis
of the Survey of Income and Program Participation (SIPP) pooled data for
2018 to 2021 finds that Social Security beneficiaries with student
loans receive an average monthly benefit of $1,524.27
The analysis also indicates that approximately 480,000 (37 percent) of
the 1.3 million beneficiaries with student loans rely on these modest
payments for 90 percent or more of their income,28
thereby making them particularly vulnerable to reduction in their
benefits especially if benefits are offset year-round. In 2019, the
average annual amount collected from individual beneficiaries was $2,232
($186 per month).29
A
recent survey from The Pew Charitable Trusts found that more than nine
in ten borrowers who reported experiencing wage garnishment or Social
Security payment offsets said that these penalties caused them financial
hardship.30
Consequently, for many, their ability to meet their basic needs,
including access to healthcare, became more difficult. According to our
analysis of the Federal Reserve’s Survey of Household Economic and
Decision-making (SHED), half of Social Security beneficiaries with
defaulted student loans skipped a doctor’s visit and/or did not obtain
prescription medication due to cost.31
Moreover, 36 percent of Social Security beneficiaries with loans in
delinquency or in collections report fair or poor health. Over half of
them have medical debt.32
Figure 2: Selected financial experiences and hardships among subgroups of loan borrowers
Source: CFPB analysis of the Federal Reserve Board Survey of Household Economic and Decision-making (2019-2023).
Social Security recipients
subject to forced collection may not be able to access key public
benefits that could help them mitigate the loss of income. This is
because Social Security beneficiaries must list the unreduced amount of
their benefits prior to collections when applying for other means-tested
benefits programs such as Social Security Insurance (SSI), Supplemental
Nutrition Assistance Program (SNAP), and the Medicare Savings Programs.33
Consequently, beneficiaries subject to forced collections must report
an inflated income relative to what they are actually receiving. As a
result, these beneficiaries may be denied public benefits that provide
food, medical care, prescription drugs, and assistance with paying for
other daily living costs.34
Consumers’
complaints submitted to the CFPB describe the hardship caused by forced
collections on borrowers reliant on Social Security benefits to pay for
essential expenses.35
Consumers often explain their difficulty paying for such expenses as
rent and medical bills. In one complaint, a consumer noted that they
were having difficulty paying their rent since their Social Security
benefit usually went to paying that expense.36
In another complaint, a caregiver described that the money was being
withheld from their mother’s Social Security, which was the only source
of income used to pay for their mother’s care at an assisted living
facility.37
As forced collections threaten the housing security and health of
Social Security beneficiaries, they also create a financial burden on
non-borrowers who help address these hardships, including family members
and caregivers.
Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.
The
Debt Collection Improvement Act set a minimum floor of income below
which the federal government cannot offset Social Security benefits and
subsequent Treasury regulations established a cap on the percentage of
income above that floor.38
Specifically, these statutory guardrails limit collections to 15
percent of Social Security benefits above $750. The minimum threshold
was established in 1996 and has not been updated since. As a result, the
amount protected by law alone does not adequately protect beneficiaries
from financial hardship and in fact no longer protects them from
falling below the federal poverty level (FPL). In 1996, $750 was nearly
$100 above the monthly poverty threshold for an individual.39
Today that same protection is $400 below the threshold. If the
protected amount of $750 per month ($9,000 per year) set in 1996 was
adjusted for inflation, in 2024 dollars, it would total $1,450 per month
($17,400 per year).40
Figure
3: Comparison of monthly FPL threshold with the current protected
amount established in 1996 and the amount that would be protected with
inflation adjustment
Source: Calculations by the CFPB. Notes: Inflation adjustments based on the consumer price index (CPI).
Even if the minimum protected
income of $750 is adjusted for inflation, beneficiaries will likely
still experience hardship as a result of their reduced benefits.
Consumers with incomes above the poverty line also commonly experience
material hardship.41 This suggests that a threshold that is higher than the poverty level will more effectively protect against hardship.42
Indeed, in determining an income threshold for $0 payments under the
SAVE plan, the Department of Education researchers used material
hardship (defined as being unable to pay utility bills and reporting
food insecurity) as their primary metric, and found similar levels of
material hardship among those with incomes below the poverty line and
those with incomes up to 225 percent of the FPL.43
Similarly, the CFPB’s analysis of a pooled sample of SIPP respondents
finds the same levels of material hardship for Social Security
beneficiaries with student loans with incomes below 100 percent of the
FPL and those with incomes up to 225 percent of the FPL.44
The CFPB found that for 87 percent of student loan borrowers who
receive Social Security, their benefit amount is below 225 percent of
the FPL.45
Accordingly, all of those borrowers would be removed from forced
collections if the Department of Education applied the same income
metrics it established under the SAVE program to an automatic hardship
exemption program.
Existing options for relief from forced collections fail to reach older borrowers.
Borrowers
with loans in default remain eligible for certain types of loan
cancellation and relief from forced collections. However, our analysis
suggests that these programs may not be reaching many eligible
consumers. When borrowers do not benefit from these programs, their
hardship includes, but is not limited to, unnecessary losses to their
Social Security benefits and negative credit reporting.
Borrowers who become disabled after reaching full retirement age may miss out on Total and Permanent Disability
The
Total and Permanent Disability (TPD) discharge program cancels federal
student loans and effectively stops all forced collections for disabled
borrowers who meet certain requirements. After recent revisions to the
program, this form of cancelation has become common for those borrowers
with Social Security who became disabled prior to full retirement age.46 In 2016, a GAO study documented the significant barriers to TPD that Social Security beneficiaries faced.47
To address GAO’s concerns, the Department of Education in 2021 took a
series of mitigating actions, including entering into a data-matching
agreement with the Social Security Administration (SSA) to automate the
TPD eligibility determination and discharge process.48
This process was expanded further with new final rules being
implemented July 1, 2023 that expanded the categories of borrowers
eligible for automatic TPD cancellation.49 In total, these changes successfully resulted in loan cancelations for approximately 570,000 borrowers.50
However,
the automation and other regulatory changes did not significantly
change the application process for consumers who become disabled after
they reach full retirement age or who have already claimed the Social
Security retirement benefits. For these beneficiaries, because they are
already receiving retirement benefits, SSA does not need to determine
disability status. Likewise, SSA does not track disability status for
those individuals who become disabled after they start collecting their
Social Security retirement benefits.51
Consequently,
SSA does not transfer information on disability to the Department of
Education once the beneficiary begins collecting Social Security
retirement.52
These individuals therefore will not automatically get a TPD discharge
of their student loans, and they must be aware and physically and
mentally able to proactively apply for the discharge.53
The
CFPB’s analysis of the Census survey data suggests that the population
that is excluded from the TPD automation process could be substantial.
More than one in five (22 percent) Social Security beneficiaries with
student loans are receiving retirement benefits and report a disability
such as a limitation with vision, hearing, mobility, or cognition.54
People with dementia and other cognitive disabilities are among those
with the greatest risk of being excluded, since they are more likely to
be diagnosed after the age 70, which is the maximum age for claiming
retirement benefits.55
These
limitations may also help explain why older borrowers are less likely
to rehabilitate their defaulted student loans. Specifically, 11 percent
of student loan borrowers ages 50 to 59 facing forced collections
successfully rehabilitated their loans,56 while only five percent of borrowers over the age of 75 do so.57
Figure
4: Number of student loan borrowers ages 50 and older in forced
collection, borrowers who signed a rehabilitation agreement, and
borrowers who successfully rehabilitated a loan by selected age groups
Age Group
Number of Borrowers in Offset
Number of Borrowers Who Signed a Rehabilitation Agreement
Percent of Borrowers Who Signed a Rehabilitation Agreement
Number of Borrowers Successfully Rehabilitated
Percent of Borrowers who Successfully Rehabilitated
50 to 59
265,200
50,800
14%
38,400
11%
60 to 74
184,900
24,100
11%
18,500
8%
75 and older
15,800
1,000
6%
800
5%
Source: CFPB analysis of data provided by the Department of Education.
Shifting demographics of
student loan borrowers suggest that the current automation process may
become less effective to protect Social Security benefits from forced
collections as more and more older adults have student loan debt. The
fastest growing segment of student loan borrowers are adults ages 62 and
older. These individuals are generally eligible for retirement
benefits, not disability benefits, because they cannot receive both
classifications at the same time. Data from the Department of Education
reflect that the number of student loan borrowers ages 62 and older
increased by 59 percent from 1.7 million in 2017 to 2.7 million in 2023.
In comparison, the number of borrowers under the age of 62 remained
unchanged at 43 million in both years.58
Furthermore, additional data provided to the CFPB by the Department of
Education show that nearly 90,000 borrowers ages 81 and older hold an
average amount of $29,000 in federal student loan debt, a substantial
amount despite facing an estimated average life expectancy of less than
nine years.59
Existing exceptions to forced collections fail to protect many Social Security beneficiaries
In
addition to TPD discharge, the Department of Education offers reduction
or suspension of Social Security offset where borrowers demonstrate
financial hardship.60
To show hardship, borrowers must provide documentation of their income
and expenses, which the Department of Education then uses to make its
determination.61
Unlike the Debt Collection Improvement Act’s minimum protections, the
eligibility for hardship is based on a comparison of an individual’s
documented income and qualified expenses. If the borrower has eligible
monthly expenses that exceed or match their income, the Department of
Education then grants a financial hardship exemption.62
The
CFPB’s analysis suggests that the vast majority of Social Security
beneficiaries with student loans would qualify for a hardship
protection. According to CFPB’s analysis of the Federal Reserve Board’s
SHED, eight in ten (82 percent) of Social Security beneficiaries with
student loans in default report that their expenses equal or exceed
their income.63
Accordingly, these individuals would likely qualify for a full
suspension of forced collections. Yet the GAO found that in 2015 (when
the last data was available) less than ten percent of Social Security
beneficiaries with forced collections applied for a hardship exemption
or reduction of their offset.64
A possible reason for the low uptake rate is that many beneficiaries or
their caregivers never learn about the hardship exemption or the
possibility of a reduction in the offset amount.65
For those that do apply, only a fraction get relief. The GAO study
found that at the time of their initial offset, only about 20 percent of
Social Security beneficiaries ages 50 and older with forced collections
were approved for a financial hardship exemption or a reduction of the
offset amount if they applied.66
Conclusion
As
hundreds of thousands of student loan borrowers with loans in default
face the resumption of forced collection of their Social Security
benefits, this spotlight shows that the forced collection of Social
Security benefits causes significant hardship among affected borrowers.
The spotlight also shows that the basic income protections aimed at
preventing poverty and hardship among affected borrowers have become
increasingly ineffective over time. While the Department of Education
has made some improvements to expand access to relief options,
especially for those who initially receive Social Security due to a
disability, these improvements are insufficient to protect older adults
from the forced collection of their Social Security benefits.
Taken
together, these findings suggest that forced collections of Social
Security benefits increasingly interfere with Social Security’s
longstanding purpose of protecting its beneficiaries from poverty and
financial instability. These findings also suggest that alternative
approaches are needed to address the harm that forced collections cause
on beneficiaries and to compensate for the declining effectiveness of
existing remedies. One potential solution may be found in the Debt
Collection Improvement Act, which provides that when forced collections
“interfere substantially with or defeat the purposes of the payment
certifying agency’s program” the head of an agency may request from the
Secretary of the Treasury an exemption from forced collections.67
Given the data findings above, such a request for relief from the
Commissioner of the Social Security Administration on behalf of Social
Security beneficiaries who have defaulted student loans could be
justified. Unless the toll of forced collections on Social Security
beneficiaries is considered alongside the program’s stated goals, the
number of older adults facing these challenges is only set to grow.
Data and Methodology
To
develop this report, the CFPB relied primarily upon original analysis
of public-use data from the U.S. Census Bureau Survey of Income and
Program Participation (SIPP), the Federal Reserve Board Board’s Survey
of Household Economics and Decision-making (SHED), U.S. Department of
the Treasury, Fiscal Data portal, consumer complaints received by the
Bureau, and administrative data on borrowers in default provided by the
Department of Education. The report also leverages data and findings
from other reports, studies, and sources, and cites to these sources
accordingly. Readers should note that estimates drawn from survey data
are subject to measurement error resulting, among other things, from
reporting biases and question wording.
Survey of Income and Program Participation
The
Survey of Income and Program Participation (SIPP) is a nationally
representative survey of U.S. households conducted by the U.S. Census
Bureau. The SIPP collects data from about 20,000 households (40,000
people) per wave. The survey captures a wide range of characteristics
and information about these households and their members. The CFPB
relied on a pooled sample of responses from 2018, 2019, 2020, and 2021
waves for a total number of 17,607 responses from student loan borrowers
across all waves, including 920 respondents with student loans
receiving Social Security benefits. The CFPB’s analysis relied on the
public use data. To capture student loan debt, the survey asked to all
respondents (variable EOEDDEBT): Owed any money for student loans or
educational expenses in own name only during the reference period. To
capture receipt of Social Security benefits, the survey asked to all
respondents (variable ESSSANY): “Did ... receive Social Security
benefits for himself/herself at any time during the reference period?”
To capture amount of Social Security benefits, the survey asked to all
respondents (variable TSSSAMT): “How much did ... receive in Social
Security benefit payment in this month (1-12), prior to any deductions
for Medicare premiums?”
The
Federal Reserve Board’s Survey of Household Economics and
Decision-making (SHED) is an annual web-based survey of households. The
survey captures information about respondents’ financial situations. The
CFPB relied on a pooled sample of responses from 2019 through 2023
waves for a total number of 1,376 responses from student loan borrowers
in collection across all waves. The CFPB analysis relied on the public
use data. To capture default and collection, the survey asked all
respondents with student loans (variable SL6): “Are you behind on
payments or in collections for one or more of the student loans from
your own education?” To capture receipt of Social Security benefits, the
survey asked to all respondents (variable I0_c): “In the past 12
months, did you (and/or your spouse or partner) receive any income from
the following sources: Social Security (including old age and DI)?”
History can be many things. It can be both informative and purposely deceptive. And from time to time, historical events need to be revisited if we seek the truth. We also find critical historical analysis essential when we think about US higher education and student loan debt from a People's perspective.
From 1965 to 2010, the federal government was a backstop for private student loans, Guaranteed Student Loans, also known as the FFEL loans. Annual volume of private loans skyrocketed, from $5B in 2001 to over $20B in 2008, when 14 percent of all undergraduates had one. A secondary market for private student loan debt (student loan asset-backed securities) also began to flourish. An industry group, America's Student Loan Providers (ASLP), provided political cover for private lenders.
In 2007, President George W. Bush signed the College Cost Reduction and Access Act of 2007 (HR 2669) which cut subsidies to lenders and increasing grants to students. But this did little to contain the growing mountain of student loan debt. A mountain of unrecoverable debt that was crushing millions of consumers as the US was facing an enormous economic crisis, the Great Recession.
In rereading The Student Loan Mess, we also discovered that these private entities had not only made questionable loans, some private lenders had also bribed university officials to become preferred lenders. How commonplace this student loan grift was has not been adequately explored.
As part of Health Care and Education Reconciliation Act of 2010, President Obama's takeover of the Guaranteed Student Loan program in 2010, did get attention. Ending the Guaranteed Student Loan program was supposed to save the US government $66B over an 11-year period. This rosy projection never materialized. The FFEL loans acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program are now part of the Direct Loan portfolio. The U.S. Department of Education (ED) acquired an additional $20.4 billion in face amount of FFEL loans from lenders during the transition from the FFEL program to the Direct Loan program.
The FFEL loans that were not acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program remained with the original private lenders. These loans continue to be serviced by the private lenders that issued them.
For-profit colleges, the engine for much of this bad debt, did get scrutiny, and from 2010 to 2023, their presence was reduced. But overpriced education and edugrift continued in many forms. And after a short respite from 2020 to 2024, the mountain of bad student loan debt continues to grow.
Adam Looney and Constantine Yannelis have reopened their research on the student loan mess with a new paper from Brookings titled "What went wrong with federal student loans?" The paper talks about what went tragically wrong with student loans in the United States from 2000 to 2020.
Here are the key points:
1. More people started going to college, especially those who didn't have a lot of money or whose parents didn't go to college. [See note below] 2. To pay for college, many of these new students had to borrow money from the government through student loans. 3. A lot of these new students went to for-profit schools. These are schools that are run like businesses to make money, unlike regular public or non-profit colleges. 4. The problem is that many of these for-profit schools didn't provide a good education. Their students often didn't graduate or couldn't find good jobs after finishing school. 5. Because these students couldn't get good jobs, they had trouble paying back their loans. This caused a big problem for the government and the students.
Now, let's look at Figure 3 Panel B: This graph shows how many first-generation college students (students whose parents didn't go to college) enrolled in different types of schools. The schools are grouped by how well their students could repay loans. The red line at the bottom represents the best schools - where students usually paid back their loans easily. You can see this line barely goes up over time. The dark blue line at the top represents the worst schools - where students had the most trouble paying back loans. This line goes way up, especially after 2000.
What this means is that a lot of first-generation students, who often didn't have much money to begin with, ended up at the schools where they were least likely to succeed and most likely to have trouble with their loans.
The for-profit schools took advantage of this situation. They aggressively recruited these students, knowing they could get money from government loans. But they didn't focus on giving students a good education or helping them get jobs. Instead, they just wanted to make money for themselves.
This led to a big increase in student debt problems, especially for students who were already at a disadvantage.
Note: This statement refers to trends in college enrollment that occurred in the early 2000s through about 2012. Let me explain the reasons behind this trend and whether it's still true today:
Reasons for Increased College Enrollment 1. Policy Changes: Starting in the late 1990s, policymakers weakened regulations that had previously constrained institutions from enrolling aid-dependent students[1]. This made it easier for more people to access federal student aid and enroll in college. 2. Economic Factors: - The persistently high return to college education over the last several decades increased demand for higher education[1]. - During economic downturns like the 2001 recession and the Great Recession starting in 2007, the opportunity cost of enrollment was low due to weak labor markets[1]. 3. Supply Expansion: The supply of programs surged, particularly open access institutions, online programs, and graduate programs[1]. Many of these new programs were targeted at non-traditional student populations. 4. Demographic Shifts: Between 1990 and 2010, the number of high school graduates increased by 34%[1].
Is it Still True? The trend of increased college enrollment, especially among disadvantaged groups, has partially reversed since its peak: 1. Overall Enrollment: By 2020, total undergraduate enrollment had declined back to near its level in 2000[1]. 2. Demographic Changes: - Black undergraduate enrollment in 2020 remains only modestly higher than in 2000 - about 10% greater[1]. - White undergraduate enrollment in 2020 was below its level in 2000[1]. - Hispanic enrollment almost doubled between 2000 and 2020[1]. 3. First-Generation Students: While 60% of postsecondary students were first-generation in 2000, this share declined to 56% in 2020[1]. 4. For-Profit Sector: Enrollment at for-profit institutions, which had surged between 2000 and 2012, has since declined significantly[1].
In summary, while there was a significant increase in college enrollment, especially among disadvantaged groups, from 2000 to 2012, this trend has partially reversed in recent years. However, some changes, like increased Hispanic enrollment, have persisted. The overall landscape of higher education enrollment continues to evolve, influenced by economic conditions, policy changes, and demographic shifts.
[Editor's note: The FY 2023 FSA Annual Report is here.]
In 2014, the father-son team of Joel Best and Eric Best published The Student Loan Mess: How Good Intentions Created a Trillion Dollar Problem. Their argument was that rising student loan debt posed a major social and economic problem in the United States, exceeding $1 trillion at the time of publication (predicted to reach $2 trillion by 2020). This "mess" resulted from a series of well-intentioned but flawed policies that focused on different aspects of the issue in isolation, ultimately creating unintended consequences.
Key Points of the 2014 book:
History of Federal Involvement: The book explored the evolution of federal student loan programs, highlighting how each policy change created new problems while attempting to address the previous ones.
Cost of College: Rising tuition fees along with readily available loans fueled the debt crisis, as students borrowed more to cope with increasing costs.
Repayment Challenges: The authors delved into the difficulties graduates face repaying their loans, including high interest rates, complex repayment plans, and limited income mobility.
Societal Impacts: The book examined the broader societal consequences of student loan debt, such as delayed homeownership, reduced entrepreneurship, and increased economic inequality.
Beyond the Mess: While acknowledging the complexity of the issue, the authors discussed potential solutions, including loan forgiveness programs, income-based repayment plans, and increased government regulation of for-profit colleges.
Overall, "The Student Loan Mess" provided a critical historical analysis of the factors contributing to the crisis and suggested pathways towards a more sustainable system of higher education financing.
Expansion of Federal Loan Programs (1960s-1990s):
The creation of federal loan programs initially aimed to increase access to higher education.
This led to rising tuition costs as universities saw guaranteed funding, with less pressure to remain affordable.
Loan eligibility expanded, encouraging more borrowing even without clear career prospects for graduates.
Cost Explosion and Predatory Lending (1990s-2000s):
College costs skyrocketed due to various factors, including decreased state funding and increased administrative spending.
Loan limits were raised, further fueling the debt increase.
Private lenders entered the market, offering aggressive marketing and deceptive practices, targeting vulnerable students.
Recession and Repayment Struggles (2008-present):
The Great Recession exacerbated loan burdens as graduates faced limited job opportunities and stagnant wages.
Complex repayment plans and high interest rates created a challenging landscape for borrowers.
The rise of for-profit colleges further complicated the issue, often saddling students with debt for degrees with low earning potential.
Growing Awareness, Advocacy, and Reform (2010s-present):
Public awareness of the student loan crisis grew, leading to increased advocacy and demands for reform.
Issues like predatory lending, debt forgiveness, and income-based repayment gained traction.
In 2010, the Health Care and Education Reconciliation Act made a significant change to the federal student loan system. Previously, the government guaranteed private loans, meaning it reimbursed lenders if borrowers defaulted. In turn, lenders received subsidies for participating. The Act ended these subsidies for private lenders, resulting in over $60 billion saved that could be reinvested in student aid programs.
Debates on the role of government and private lenders in financing higher education continued.
Next Chapters?
Since 2014, almost ten years after the Student Loan Mess was published, several major developments have unfolded concerning student loan debt:
Growth and Persistence:
Debt continues to climb: While the growth rate has slowed somewhat, outstanding student loan debt has surpassed $1.7 trillion and remains a significant burden for millions of borrowers.
Racial and socioeconomic disparities persist: African American and Latinx borrowers disproportionately hold a higher amount of debt compared to white borrowers, exacerbating economic inequalities.
Expansion of income-driven repayment plans: Options like Income-Based Repayment (IBR) and Pay As You Earn (PAYE) have been expanded, allowing borrowers to adjust their monthly payments based on income.
Public Service Loan Forgiveness (PSLF) challenges: Legal uncertainties and administrative backlogs have plagued PSLF, leaving many public servants struggling to qualify for loan forgiveness.
Temporary pandemic relief: During the COVID-19 pandemic, federal student loan payments were paused and interest rates set to 0%. Payments resumed in 2023.
Debt cancellation debates: Proposals for broad-based student loan forgiveness have gained traction, with several Democratic lawmakers pushing for different cancellation amounts. However, these proposals have faced legal and political hurdles. In 2023, the 9th Circuit Court ruled in favor of mass cancellation of loans from predatory for-profit colleges (Sweet v Cardona). A few months later, the US Supreme Court struck down President Biden's plan for debt relief to more than 30 million Americans.
Increased attention to for-profit colleges and online program managers: Scrutiny of predatory practices and low graduate outcomes at for-profit institutions has intensified. Gainful employment rules have been reestablished, but whether they will be enforced is in question.
Looking forward:
The future of student loan debt remains uncertain. Key questions include:
Will broad-based loan forgiveness materialize?
Can income-driven repayment plans be made more effective?
How will future administrations address affordability and access to higher education?
What role will the private sector play in financing higher education?
How will declining enrollment numbers and skepticism about the value of higher education affect student loan debt and debt relief?
Will higher ed institutions be held accountable for the debt of their former students and alumni?
Can higher education reduce consumer costs and provide value to consumers and communities at the same time?
Economic factors: A strong economy could increase government revenue, potentially enabling broader debt forgiveness or increased funding for higher education access initiatives. Conversely, an economic downturn could make policy interventions more challenging.
Elections and political pressure: Public opinion and the results of future elections will influence the political will for reform. Continued activism and pressure from advocacy groups could sway policy decisions.
Legal challenges and court rulings: Lawsuits over debt cancellation programs and loan servicer practices could impact the legal landscape and shape future policy options.
Private sector involvement: Developments in the private student loan market and potential regulations of lending practices could affect access to credit and repayment options.
Consumer Decisions:
Debt burden and economic outlook: The level of outstanding debt and future job prospects will significantly influence borrower behavior. Increased debt loads could incentivize riskier repayment strategies or delaying major life decisions like homeownership.
Awareness and financial literacy: Improved understanding of loan terms, repayment options, and alternative financing methods could empower borrowers to make informed decisions.
Government programs and incentives: Changes to income-driven repayment plans, loan forgiveness programs, and other government initiatives will directly impact consumer choices about managing their debt.
Emerging Trends:
Alternative financing models: Innovations like income-share agreements and skills-based financing could disrupt traditional loan structures and offer new options for students.
Technology and automation: Increased use of technology to streamline loan management and repayment could improve efficiency and transparency.
Focus on affordability and value: As concerns about the value proposition of higher education grow, there might be a shift towards emphasizing affordable options and skills-based learning.
How does student loan debt affect the lives of Americans?
Student loan debt has a profound impact on the lives of millions of Americans in various ways, affecting not just their finances but also their major life decisions and overall well-being. Here's a breakdown of some key areas: Financial Impact:
Burden of debt: The average graduate has over $40,000 in student loan debt, significantly impacting their monthly budget and disposable income. This can limit savings for retirement, emergencies, and major purchases like a house.
Lower credit scores: Missed payments or delinquencies can negatively affect credit scores, hindering access to future loans and increasing interest rates on other forms of credit.
Delayed milestones: High debt burdens may cause individuals to delay major life milestones like buying a home, getting married, starting a family, or pursuing further education due to financial constraints.
Career Choices:
Job dissatisfaction: To make loan payments, some graduates might feel pressured to stay in high-paying but unfulfilling jobs, sacrificing career satisfaction for financial stability.
Entrepreneurial risk: The fear of financial failure due to debt may discourage individuals from pursuing entrepreneurial ventures, hindering innovation and economic growth.
Limited career mobility: Debt may lock individuals into specific career paths based on earning potential, restricting their ability to pursue desired career changes.
Mental and Emotional Wellbeing:
Stress and anxiety: The constant pressure of debt repayment can lead to significant stress and anxiety, impacting mental and emotional well-being.
Lower self-esteem: Feelings of financial instability and hopelessness can negatively impact self-esteem and overall life satisfaction.
Stigma and discrimination: Some individuals may face social stigma associated with student loan debt, further exacerbating the emotional burden.
Societal Impact:
Economic inequality: Student loan debt disproportionately affects certain groups, like minorities and low-income students, perpetuating and widening economic inequality.
Lower homeownership rates: High debt burdens can hinder homeownership, negatively impacting the housing market and contributing to wealth disparities.
Reduced consumer spending: Debt-burdened individuals have less disposable income, limiting their purchasing power and affecting the overall economy.
Social Class and Student Loan Debt
There's a well-documented and intricate relationship between social class and student loan debt, characterized by significant inequalities and disparities. Here's a breakdown of some key points:
Higher burden on lower classes:
Borrowing rates: Individuals from lower socioeconomic backgrounds are more likely to borrow student loans due to limited family resources and higher college costs compared to their income.
Debt amounts: Borrowers from lower socioeconomic backgrounds often take on larger debt loads due to higher tuition fees and living expenses, often exceeding their earning potential after graduation.
Repayment challenges: They face greater difficulty repaying loans due to lower-paying jobs, making them more susceptible to delinquency and default. This hinders wealth accumulation and upward mobility.
Contributing factors:
Limited financial support: Lack of parental financial support or savings forces students from lower socioeconomic backgrounds to rely heavily on loans for college expenses.
Limited college options: Limited access to affordable, high-quality educational institutions often steers individuals towards for-profit colleges with deceptive practices and low graduation rates, leading to high debt with limited job prospects. Ongoing Debate
There is ongoing debate on solutions to address the student loan crisis, with proposals ranging from broad-based loan forgiveness to reforms in higher education financing and income-driven repayment plans. The future of student loan debt and its impact on Americans remains uncertain and depends on various factors, including policy decisions, economic trends, and individual financial choices.
The Student Loan Debt Movement
There has been an organized effort for student loan debt relief since the 2010s. This movement, using direct action, lawsuits, and lobbying has had some gains, putting pressure for accountability for schools that use predatory practices--and getting debt relief for hundreds of thousands of debtors. The most notable organization has been the Debt Collective.
There have been legal allies too, such as the Harvard Project on Predatory Student Lending (PPSL) and the Student Borrower Protection Center (SBPC).
Named plaintiffs Theresa Sweet (L) and Alicia Davis (R) outside the federal district court in San Francisco on November 6, 2022, three days before the final approval hearing in Sweet v Cardona (Image credit: Ashley Pizzuti)
Resistance to Debt Relief
The reasons why some people might not support student loan forgiveness. Some conservatives believe that it is unfair to forgive the debts of those who willingly took out loans, while others believe that it would be a waste of taxpayer money. Additionally, some believe that student loan forgiveness would not address the root causes of the problem, such as the high cost of tuition.
It is important to note that not all conservatives oppose student loan forgiveness. Some support income-based repayment plans or public service loan forgiveness. Additionally, some believe the government should focus on making college more affordable, rather than simply forgiving existing debt.
According to a 2019 poll by the Pew Research Center, 54% of Republicans and Republican-leaning independents opposed forgiving all student loan debt, while 37% supported it.
Student Loan Debt Power Analysis: Who Benefits from Inaction?
There are elites and elite organizations who are (at least on the backstage) against student loan debt relief: student loan servicers (e.g. Maximus, Nelnet, Navient, and Sallie Mae), big banks, large corporations, and the US military. For them, debt serves as a way to get others to do their bidding. Debt is essential as a leverage tool to recruit and retain workers. Debt relief could also create more competition for better, more meaningful jobs, which some elites may not want for their children. States may be unwilling or unable to further subsidize higher education if elites are unwilling to pay. This situation is likely to worsen as Medicaid budgets are used for a growing number of elderly and increasingly disabled Baby Boomers.
It's commonly known that US student loan debt is now about $1.7 trillion and that more than 44 million Americans are laden with this debt. It's also known that student debt is not a problem for everyone who goes to college or everyone who takes out loans.
Student loan debt is not equally distributed: while the children of elites can go to school without incurring debt and find meaningful work after graduation, working families are burdened because so many cannot find decent, gainful employment after dropping out or even after graduating from college--work that would enable them to repay their loans.
Those who attend subprime colleges, and who take the wrong majors, may incur debt they can never repay.
And the multitude of debtors in between, the many millions going to less than elite schools, are having to restrict their dreams as they pay back their loans.
The US Department of Education and other organizations publish important information on student loan debt. The College Scorecard, for example, gives consumers information on the debt they can expect, gainful employment after attending, and the numbers on student loan repayment. The Washington Monthly also ranks colleges, and important numbers, like social mobility rankings and amount of principal paid are in the rankings. The Century Foundation and The Institute for College Access and Success (TICAS) also contribute to our knowledge.
But there are glaring gaps in our current knowledge about student loan debt, knowledge necessary for establishing greater transparency and accountability.
One of the most important knowledge gaps is in learning about student debt by institution. In 2016, Adam Looney and Constantine Yannelis presented a conference paper on student loan debt that listed student loan debt by institution.
Table 5 in this report showed an important aspect of the debt, of accumulated debt, the percent of principal still owed on debt, and the 5-year student loan default rate. University of Phoenix attendees had an estimated $35 billion in accumulated debt, outpacing Walden University. And Argosy, Strayer, Capella, DeVry, American Intercontinental, and Nova Southeastern attendees owed more money than the principal of their loans, 5 years after the loans were taken out. Kaplan University (know known as Purdue University Global) had a 5-year student loan default rate of 53 percent, and Ashford University (know known as University of Arizona, Global Campus) and Colorado Technical Institute had 5-year student loan default rates of 47 percent. These subprime colleges, in effect, were draining the student loan portfolio while providing a service that hurt many of their customers.
Even some big brand name schools likeNYU, University of Southern California, Penn State, Arizona State University, Ohio State, University of Minnesota, Michigan State, Rutgers, Temple, UCLA, and Indiana University had students with enormous amounts of debt that they were having to pay off.
The data in this study were from 2009 and 2014. What has happened since then at the institutional level? What schools today are draining the student loan portfolio and financially crippling those who have attended? Consumers and tax payers should be allowed to know.
