What are Student Borrowers Going to Do?
Transcript of Podcast Episode 251
Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, what are student loan borrowers going to do?
A new survey by Intelligent.com, a Seattle-based web publisher, produced a shocking result: 62 percent of respondents say they are “likely to boycott loan payments.”[1] The survey of over 1,000 student borrowers was conducted in August 2023.
In addition, nearly half of the respondents believe that a boycott may eventually lead to total debt forgiveness. Half are also doubtful they will be able to afford their loan payments when they are due.
But refusing to make student loan payments can result in some very serious financial consequences. This can include significantly higher balances with accrued interest, lower credit scores, garnished wages, and confiscated tax refunds.
In fact, without help from Congress, it is going to be very difficult to avoid paying a federal student loan. This is because the federal government has the ability to garnish wages without a court order and withhold Social Security benefits.
President Biden issued an executive order in August of 2022 promising to cancel $10,000 in federal student loan debt for low and middle-income borrowers. This was one of his 2020 campaign promises. But six states sued to overturn the executive order by stating that the White House did not have the power to do this without an act of Congress. In June of 2023, the Supreme Court overturned the cancellation of most of the federal student loan debt.
After a three-year pause, student loans began accruing interest as of September 1, and payments resume in October.
The government first got into the student loan business in 1965 with the Federal Family Education Loan program. The program made student loans available through privately-owned banks and helped 60 million students pay for a college education.[2] But it was unpopular in Washington, where some politicians disliked the idea of subsidies paid to the banks. They also felt that the government should be making and profiting from these loans, since even though privately-owned banks were making the loans, the taxpayers were the ones assuming the default risk.
The administration of student loans was taken over by the federal government as part of the Health Care and Education Reconciliation Act of 2010. The bill required that all student loans originated after July 1, 2010, be done via a direct lending program. At the time, the Congressional Budget Office estimated that this would generate savings of $62 billion over the following 10 years, although evidence suggests those savings have not materialized.[3]
The Intelligent.com survey concludes by editorializing about the need to pressure policymakers for student debt relief, but it also urges most borrowers to continue making payments responsibly.” That seems to be the wisest course of action. Whether Washington is going to change the rules remains uncertain, but for now, the best option appears to be making the payments, if possible, and keeping your credit history as strong as you can. It may be beneficial in the long run.
[1] Intelligent.com. “6 in 10 Federal Student Loan Borrowers Likely to Boycott Payments this Fall.” Intelligent.com https://www.intelligent.com/6-in-10-federal-student-loan-borrowers-likely-to-boycott-payments-this-fall/ Accessed September 6, 2023.
[2] Forbes.com. “The Government Takeover Of Student Lending.” https://www.forbes.com/2010/05/10/student-loans-hcera-leadership-education-fox.html Accessed September 7, 2023.
[3] Peter G. Peterson Foundation. “Why Did the Federal Government Get Involved in Student Loans?” pgpf.org https://www.pgpf.org/blog/2022/06/why-did-the-federal-government-get-involved-in-student-loans Accessed September 7, 2023.
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