Debt Trap: Student Loan Payments Resume with Partial Relief

Currently, 43.6 million borrowers collectively owe a student-loan debt of $1.77 trillion. The federal government holds 93.1 percent of that debt. In the state of Washington, borrowers have an average student debt of $36,060 – about $1,000 less than the national average. For the past three pandemic years, most of those debtors have not made loan payments. Paybacks have now begun.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed by Congress in March 2020, included a six-month suspension of payments on federally funded student loans. Presidents Trump and Biden both extended the forbearance on paying for student debt multiple times. In the summer of 2023, Congress enacted a law forbidding further extensions of the payment pause, and the Supreme Court struck down a Biden administration comprehensive plan for forgiving student debt. In October 2023, student loan borrowers were required to start making debt payments again.

Zach Brady, age 25, works as a bartender in Ballard where he earns about $50,000 a year. He attended Central Washington University from 2016-2018. He left with debt but no degree. After dropping out of college, he worked in a cabinetry shop and then, when restaurants started reopening after the pandemic lockdown, he started tending bar. He did not make any student loan payments from March of 2020 until October 6 of 2023.  He owes about $6,500 in debt and has elected to make the minimum monthly payment of $78.

Despite congressional and Supreme Court actions, student debt relief is not completely off the table. The Biden administration has improved payouts from existing student debt relief programs for teachers, public service workers, those who attended institutions that engaged in misconduct, and persons who have permanent disabilities. Since October of 2021, 15,700 borrowers in the state of Washington have had an average of about $6,600 of student debt discharged. The new Saving on A Valuable Education (SAVE) plan, introduced in September of 2023, streamlined and reduced monthly payments for those on income-driven payment plans.

Mikey De Pala, age 30, enrolled in the SAVE plan and made the first payment on his $120,000 debt for physical therapy graduate school on October 18. He earned his DPT in January of 2021. Throughout his studies, he was often discouraged because of the debt he was accruing.  “The cost for getting a degree in physical therapy is hard to justify. Salaries aren’t great, but the tuition cost is high. I felt like I was busting my butt and going into debt with very little return on investment.” He found that annual salaries for entry-level jobs in physical therapy in the Seattle area are in the $70,000 to $76,000 range. The SAVE plan is designed for people like De Pala who have a high debt-to-earnings ratio.

Under a traditional 10-year pay-back plan De Pala had estimated that his debt payments would have been $1,360 per month. Under the old income-driven plan, he would have paid about $680 per month. But under the SAVE plan his first payment was $236. His repayment will be adjusted every year based on income. At the end of 25 years of making payments, any remaining debt will be forgiven. “The SAVE program feels too good to be true,” De Pala said. “Without it, I would be barely scraping by.”

An October 4, 2023 news release quoted U.S. Secretary of Education Miguel Cardona: “The … laser-like focus on reducing red tape, addressing past administrative failures, and putting borrowers first have now resulted in a historic $127 billion in debt relief approved for nearly 3.6 million borrowers.” But 40 million will still have student debts to pay. And even those who do get relief, may not see it until the summer of 2025 because of extended rule-making processes.

Paying off student debt has broad economic consequences. The Education Data Initiative reports that 96 percent of student loan borrowers have put off at least one major life/financial milestone (e.g., home buying, starting a family, building long-term savings) because of student debt.

De Pala is planning a wedding and has found that he and his fiancé have had to cut back on their expectations. He also feels like it is “really hard to even think about starting a family” because of his debt. He and his fiancé share a one-bedroom apartment on Capitol Hill. “We can’t even begin to afford to buy a house in the areas where we would like to live,” he said.

Brady said, “I am trying to save money from my regular job and from extra gigs working for special events. If I didn’t have that debt, my stress levels about money would be a lot lower. I’m just thankful I don’t owe any more.”

Americans are divided in their views about how much, if any, student debt should be forgiven. While 31% oppose all cancellation of student debt, 55% support cancellation of up to $10,000 per borrower. That level of forgiveness would clear the student debt of 34% of borrowers – including Brady. But it would only put a small dent in De Pala’s debt.

Brady is not bitter about paying for an incomplete college degree. “I was just there because my parents expected it and because I was trying to prove that my high school counselors were wrong when they said I wouldn’t make it in college.” Neither of his parents has a college degree. Both are successful entrepreneurs who believed their children would go farther in life with a college degree. Brady disagrees about the importance of a college education, but he is following his parents’ example as he hopes to become an entrepreneur in the hospitality business. He shares his apartment with a roommate and keeps his expenses manageable. He hopes to soon be able pay off his student debt in one lump sum.

De Pala, whose debt is much higher, is less sanguine.  “I couldn’t have even thought about PT school without financial aid,” he said. He is happy with his new career, but he wishes that he had been a bit better informed before he took on such a heavy debt load. “It’s not easy for a 24-year-old to understand how debt works,” he said.  “At that age, I just didn’t have the life experience to understand how much it would cost to live.”

He now feels better informed about personal finances, but student debt remains a bit of a puzzle. “I’ve done my new due diligence and it’s still confusing. And when I finally called to try to get answers, I had to wait for three days to get a call back.” The red tape has not been eliminated. But payback requirements are fully restarted.