Across the country, millions of Americans with unpaid student loans are discovering that years of patience and forgiveness from the U.S. government have officially come to an end.Stacy Cowley, a business reporter for The Times, explains what is behind the change of heart, sets out its financial consequences for borrowers — and discusses the larger reckoning that it may cause about how Americans pay for higher education.Guest: Stacy Cowley, a business reporter at The New York Times, with a focus on consumer finance.Background reading: Millions of student loan borrowers are behind on payments.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. Photo: Seth Wenig/Associated Press Unlock full access to New York Times podcasts and explore everything from politics to pop culture. Subscribe today at nytimes.com/podcasts or on Apple Podcasts and Spotify.
Chapter 1: What has changed in student loan forgiveness?
From The New York Times, I'm Michael Barbaro. This is The Daily. Across the country, millions of Americans with unpaid student loans are discovering that years of patience and forgiveness from the U.S. government have officially come to an end.
Today, Stacey Cowley on what's behind the change of heart, its financial consequences for borrowers, and the larger reckoning that it could finally trigger about how Americans pay for higher education. It's Monday, April 21st. Well, Stacey, it's nice to have you back.
Thanks for having me.
I think this is the third time that we have had a version of this conversation with you.
Fourth, I think.
Oh, excuse me.
There's a lot of developments along the way.
Well, that's right. I mean, we keep coming to you to talk about this subject because you're the authority on it and because it keeps changing. And at this point, it's genuinely confusing. And it's extremely important to tens of millions of people. So I'm preemptively grateful. Well, thank you for your interest. So where exactly are we right now in this long winding saga of America's student loans?
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Chapter 2: What are the consequences of resuming payments?
So we're at a real turning point on this. After this nearly five-year period when most people weren't making payments and weren't required to do so and weren't having any negative consequences if they didn't, the government really dropped the hammer in the last few months. They've said, we are done with timeouts. We're done with pauses. You need to start paying again.
That's a very big change.
Mm-hmm. And they instructed their loan servicers to start reporting delinquencies to the credit bureaus again, which hasn't happened for five years now. So that immediately resulted in four million people found delinquencies reported on their credit reports. And these are serious delinquencies. People saw their credit scores plunge.
That can have immediate impacts on your ability to rent an apartment, to get a mortgage, to get a loan for a car. So this can be pretty catastrophic when this happens to you. And we've had 4 million people who are now in that delinquency. The estimates are that we're going to have as many as 9 million by the end of this year and that many of those people could end up in default.
That's what happens when you don't pay for at least nine months. And that sets off a whole nother series of very bad financial consequences. And if we do end up with 9 million people defaulting, that would be a record number.
Right, and it would also mean we have 9 million Americans who are basically in the worst kind of financial bind you can be in.
Yes. And even beyond that, the repayment really hasn't gone as planned. Right now, of the roughly 38 million borrowers who have payments due and are supposed to be making payments. Yeah, it's a big number. So of those 38 million, right now only about a third are making payments.
I think it's important to have you remind us briefly how we got here because a lot of factors went into how we arrived in this moment.
Yeah. So the federal student loan payment system has always been kind of rocky. It has never really worked particularly smoothly for the last decade and a half. But what happened when the pandemic started back in March 2020 was the government immediately called an emergency timeout.
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Chapter 3: How did the pandemic affect student loan payments?
Right. Huge deal. And kind of understandable because it was the federal government that shut our economy down. And so the thinking was we're going to not force a lot of people who are out of work or making a lot less than usual to have this burden on top of that.
Exactly. There were record unemployment numbers. And one thing about this is not only was the government the one that shut things down, they are also the creditor for all of these student loans. It's a very unusual market in that they don't have to go to banks. They don't have to go to private lenders. Right.
They were providing the loans.
Exactly. So it was very easy for them to say, OK, we're just going to turn it off. And that was always intended to be a temporary measure, but it kept getting extended. First by President Trump. So Trump extended it several times. Then President Biden took office and he extended it several times. And it just kept going and going and going.
And so for how long were, I think, tens of millions, right, of folks who had lots of student loan debt permitted to not make repayments? Right.
So it officially stretched for about four years until September 2023. But then President Biden added an additional thing to this. He said for the next year, all right, you're supposed to be making payments. We're going to try to collect, but we're not going to report you to the credit bureaus if you don't.
I'm going to guess a lot of people took advantage of that.
There wasn't a lot of negative consequences if you just didn't start paying. So a lot of people didn't. And adding to that was the confusion around what was going to happen to this debt. I mean, President Biden was pursuing the plan of mass debt cancellation up to $20,000 per borrower. The Supreme Court then overturned that.
And all of these people who thought their debts might go away entirely got that disappointment.
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Chapter 4: What is the SAVE repayment plan?
Well, it was an income-driven payment plan, meaning that your payments would be directly tied to how much you were making. It was deliberately an attempt to keep things affordable. And on past payment plans, that's typically been limited to about 10 percent of your discretionary income. President Biden's plan cut that in half. for people with only undergraduate loans.
So suddenly people whose payments were 10% of, you know, their income were cut down to 5%. That's a huge change.
Right. There's just a lot of amnesty kind of built into the messaging and the system. But of course, Trump and his allies on the campaign trail, and I watched this closely, were making the argument, wait a minute, why is student debt being treated with all this forgiveness? Nothing like that happens to auto debt or mortgage debt. So why college debt?
And to Trump, out of office at this point, it felt like a Democratic president handing out gifts to Democratic kind of people.
There's a real political divide around here. And the reality of the demographics don't always bear it out. A lot of the people who do have debt, it is a lot of people who are working class. And a lot of people have amounts from things like trade schools and professional schools that they haven't been able to pay off.
So plenty of people in the Trump coalition have student debt.
Exactly. But it was definitely clear that Trump had a very different vision for this than President Biden did. And that if he were to come back to office, that a lot of what Biden had built was going to go away.
Okay, so let's fast forward to the part where Trump does come back to office. What exactly does he do? What does he change? What does he take away? And what remains?
So even before Trump comes back to power, the plan that Biden introduced, the SAVE plan, got caught up in court. A group of Republican-led states challenged it, said this exceeded the president's authority, and that has been prevailing in court, which left about 8 million borrowers who had signed up for this plan kind of in limbo, waiting to see what was going to happen with these court cases.
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Chapter 5: Why are borrowers struggling to pay their loans?
Exactly. And one of the things borrowers are now confronting is not only do you have to start paying this bill again, but you also have to navigate what's the best way to pay it. And that's been one of the areas where borrowers have been running into challenges. They have been trying to get themselves back into repayments. And there is currently an enormous backlog at the education department.
A lot of people have already left, either by being fired or retiring or just deciding to opt out. So that agency is currently very hollowed out. One of the offices that has really been decimated over there is an office that handles student loan borrower complaints.
One of the people who was fired last month from that office said in court filings that she left behind a backlog of 16,000 complaints that are piled up and unaddressed. The education department also has more than a million borrowers who have applied for income-driven payment and are stuck in limbo. They're waiting for their applications to be processed.
There's a huge backlog, often stretching for months. So those people are also kind of stuck right now.
This is where the doge job cut rubber meets the road.
Yes. At exactly the moment when you would ideally want to be staffing up and putting more resources into the system to help people navigate this return to repayment, we've instead done the opposite.
I'm going to assume that you have spoken to some borrowers who, when they've been told now they have to start repaying, are trying to do that. And I wonder what the math looks like in their financial life all of a sudden.
It's a real struggle for a lot of people.
Thank you so much for taking the time to talk with me about this. Oh, no problem. Yeah, it's been quite, yeah.
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Chapter 6: What challenges are borrowers facing with servicers?
People got really used to not having that payment. And now with this payment kind of crashing back into their lives, people are trying to make it happen. They know it's a debt they borrowed and one that they have to repay. And they're running into challenges. So I called the Department of Education and waited on hold for hours.
Nobody has any answers. Nobody has any solutions.
Trying to figure out how they can reintegrate this payment into their lives. And I'm going, wait a second. I can't make those payments.
That's a lot of money. And then I'll never be able to retire. That's why a big scary shadow chases me in my dreams, literally.
How should we think about the bind that a lot of these folks are in? I mean, perhaps this is an imperfect analogy, you'll let me know, but this feels a bit like the moment when a lot of folks in the mid-2000s who had those adjustable rate mortgages, like had them reset. And all of a sudden they owed a lot more. On some level, they knew that moment would come.
And yet when it comes, there's still a lot of financial sting. Even as I'm asking the question, I'm recognizing why it's imperfect because in the case of student loans, the situation kept changing. The rules kept changing. The expectations kept changing. So maybe there's a flaw to that question. How should we think about this?
They're very strange loans. There is no other consumer loan that you take out where you don't know when you take it exactly what the payment terms and options are going to be.
Yeah, that is really weird.
And that has really whiplashed people. I mean, most of the borrowers I talk to start the conversation and end the conversation by saying, I want to pay what I owe. I took the loan. I knew it was going to come due. I knew I'm going to have to pay it. But they are really frustrated by both having this hope put in front of them for a more affordable option and then having it snatched away.
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Chapter 7: How does the political landscape affect student loans?
That's a question that gets asked frequently, and certainly the situation right now is bringing it to light again. And there are people in and around Trump, people in Trump's orbit, who are asking that question and who are raising the issue of, is it time for the government's role in this to change?
Should the government really play a profoundly different kind of role in this system than it does now?
We'll be right back.
So, Stacey, if, as you just said, there's some real questions about whether the government should play this role in student loans, I think it naturally makes sense to understand how and why the federal government got into this business in the first place. What's that story?
So, for that, we go back to the mid-'60s. Up until then, college education and certainly financing for it was something that was pretty limited. I mean, you really could only get that if you were, you know, a high performing student studying, you know, hard sciences and things like that. In 1965, Congress and the president passed the Higher Education Act.
And that was a landmark bill that transformed the higher education system. And it was the first time that said, we're going to have a government-sponsored program where pretty much anyone can come get a loan and borrow to go to college. So private banks actually made the loans. But these are really risky loans. A lot of them aren't going to get paid back.
So the role the government played was it said to the private lenders, OK, we're if this loan goes bad, if it sours and the borrower doesn't pay, we will step in and pay you.
Because there's a public interest in sending more and more Americans to college.
Yes, this was very much perceived as something that was good for the United States. Part of it came out of a direct counter to the Soviet Union, the concern that we would fall behind, that there would be an education gap. So the idea was that this was something that was in the taxpayers' interests to make sure that more people could pursue higher education.
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