It is no secret that the federal student loan program is in crisis. Nearly 40% of the 43 million borrowers are either in an uncertain holding pattern under temporary deferment or are already trashing their credit because they failed to resume making payments when the COVID pause ended last year.
The Biden administration fed unrealistic expectations of mass forgiveness that exceeded the president’s legal authority and were rightly dashed by the courts. Now a new administration is shaking things up again with changes to existing repayment plans and collection efforts, all amid Draconian staffing cuts and efforts to eliminate the federal agency responsible for managing the massive program. It is urgent that borrowers understand their options and ensure they are on track, as mistakes today can have lasting consequences.
Let’s begin by recognizing that federal and state support for higher education has been one of the best public investments in American history. The first large-scale federal effort was the passage of the GI Bill in 1944, providing access to a college degree for service members returning from World War II. In 1957, the Soviet launch of the Sputnik satellite prompted President Dwight D. Eisenhower to support a federal student loan program to promote scientific and technical education in what we would call STEM fields today. The government expanded college lending with the Higher Education Act of 1965, creating a loan guarantee program to expand college access.
There have been numerous changes to the student lending infrastructure since the 1970s that, while generally well-intentioned, have resulted in a $1.7 trillion Rube Goldberg contraption that is ensnaring many lower income borrowers into a lifetime of debt. And while there is plenty of blame to go around, it is ultimately up to borrowers to understand their options and take charge of the factors over which they have control even in such an uncertain environment.
President Joe Biden made student debt forgiveness a central element of his 2020 campaign. This effort was destined to fail for two reasons. First, it was manifestly unfair to the millions of Americans who had dutifully repaid their own obligations and would establish a negative precedent for future students. Secondly, the president’s blanket $20,000 erasure for half of all borrowers was ruled unconstitutional by the Supreme Court, which said that while he did possess limited ability to tinker around the edges, he did not have the power to discharge a broad swath of debt without Congressional action.