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Editorial: Happy new loan payments, student borrowers

Student loan debt illustration

Graduation mortar board cap on one hundred dollar bills concept for the cost of a college and university education

People look to the new year as a time of hope and renewal.

For a significant subset of Americans, 2022 will be a time for renewal of student loan payments.

The federal government hit the pause button on many, though by no means all, student loan payments in March 2020 as the COVID-19 pandemic-related shutdowns scrambled the economy and put more than 15 million Americans out of work. Despite pleas from progressives for further pandemic-concerned postponement, President Joe Biden intends to unclick the pause button, though the original Feb. 1 switch has been postponed to May 1.

According to the latest statistics from the New York-based Education Data Initiative, Virginia is home to 1.06 million student borrowers, more than half under age 35, who owe a total of about $41.9 billion. Virginia residents with student loans carry an average debt of $39,472, one of the highest debt loads per borrower in the nation.

In the U.S., three out of every 20 people are paying back student loans, for a combined total owed of about $1.75 trillion, second only to mortgages in terms of categories of consumer debt. The COVID-19 pandemic crisis caused the collective student loan debt to spike by more than 8%, the largest single year increase since 2013.

Raising the subject of crushing student loan debt often brings critics out of the woodwork similar to those who seem to be lying in wait to cast shame on those who struggle with addiction. To paraphrase, “It’s not a national problem, it’s a ‘you’ problem, that you brought on yourself with your bad choices. You should have gotten a higher-paying job. You should have picked a more lucrative career.”

Maybe in some instances these scolds are on point. But then again, a 2020 pre-pandemic American Bar Association Young Lawyers Division survey showed that 56% postponed or chose to completely forgo buying a home, 48% were choosing not to have kids, and 1 in 3 were choosing not to get married because of student loan debt.

Once the pandemic began, and law firms began to rescind employment offers, those numbers certainly got worse.

The federal CARES Act relief package passed in 2020 assisted at least 20 million of those 48 million borrowers. Payments on federally owned student loans and collections on loans in default were suspended. Those still paying off privately owned loans such as Stafford Loans mostly weren’t eligible for the loan repayment pause. For them, May 1 makes no difference.

The easy access that students and their families have to education loans with no upper limit contributions to the ever-skyrocketing cost of tuition. Something that’s not a routine part of the student loan process, however: prospective borrowers are not advised about their risk when it comes to their potential post-collegiate ability to pay off the amount borrowed. Institutes of higher learning, who get paid regardless of the price of tuition and regardless of what ultimately happens to the student, have no incentive to do so.

There are programs for loan forgiveness, but they are difficult to qualify for, and even in the rare cases where a borrower appears to meet the criteria, the chance their application for forgiveness will be rejected is extremely high. Data from the Education Data Initiative shows that less than one percent of student loan holders get their debts forgiven.

A key difference between student loans and most any other kind of loan out there is that filing bankruptcy won’t make them go away. Usually. David-vs.-Goliath style court cases do exist where a former student now drowning in debt has fended off a lawsuit from an education loan lender. Some have even successfully sued for discharge. They remain rare exceptions to the status quo — for the overwhelming majority, even a debilitating circumstance like illness or an accident will make no difference, as a student loan remains latched on like a lamprey.

During his campaign to unseat Donald Trump, former vice president Biden said he wanted to forgive $10,000 in federal student loan debt per lendee. Though it was never clear how extensive that forgiveness would be, it’s so far a moot point because it hasn’t happened.

Biden has instead focused on making existing forgiveness programs work more like they promise, and this has resulted in about $12.7 billion in loans getting discharged, which sounds great, except that it’s less than a tenth of a percent of the existing debt.

Questions hang over whether Biden’s promise is even feasible under current circumstances — in Congress, Republicans don’t support the idea, and Blue Dog-style senators like Joe Manchin and Kyrsten Sinema would likely squelch it. Biden himself has suggested that an executive order might not survive a court challenge.

In April, he asked both the Education and Justice departments to investigate what authority he has to cancel or forgive student debt. So far, they have not reported back.

For those pining for the cancellation of student debt, there is considerable irony in the fact that the man they are looking to for this relief is a person who bears a lot of the responsibility for creating the situation they hope to see solved.

One of the key backers of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act that made student loans nigh immune to bankruptcy discharge, and caused student debt to balloon, was none other than Delaware Sen. Joe Biden.

A champion for credit card companies, which set up shop in Delaware to take advantage of regulations tailor-made for them, and which contributed to Biden’s election campaigns, Biden spoke about loan debt and bankruptcy back then in a way that calls to mind those social media scolds we mentioned, as he sneered at the notion that lenders should be stuck holding the bag for “the broken system.”

In fact, dating back to the late 1970s, Biden consistently backed bills that made it easier for students to take on more debt than they could afford and harder to escape loans if they could not pay.

Perhaps he’s in no hurry to hear what the Education and Justice departments have to say about his power over student loan debt.

The Biden administration has rescheduled the renewal of student loan repayments from Feb. 1 to May 1. This editorial has been updated to reflect that change.

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