The Student Loan Problem Is Everyone’s Problem

Education debt in the US has risen by more than 50% in the last 10 plus years and now amounts to more than $1.7 trillion, which is a larger total burden on American borrowers than either car payments or home mortgages.

Given that about 25% of the US workforce have outstanding student loans, the issue is nearly unavoidable among all but the smallest companies and most specialized trades, and the problem isn’t likely to improve in the near term given that more than half of all graduates of 4-year collegiate institutions paid for those educations at least partly through loans - averaging about $29 thousand per student.

_{Source: Education Data Initiative, https://educationdata.org/student-loan-debt-statistics}

_‍Worse, when federal loan repayments resumed in the fall of 2023 after a multi-year pandemic-inspired pause, about 40% of borrowers have so far not recommenced making these loan payments as expected.

Because federal student loan payments must be delinquent for 270 days before they formally go into default, however, there’s a considerable lag before the repercussions of non-payment will really begin to be realized.

It’s important to note that from the borrower perspective, there are a lot of short-term benefits to not paying student loans and instead prioritizing housing, healthcare, or whatever other expenses they’ve got that sit above student loans on their hierarchy of needs. The lag between when borrowers stop making payments and when the consequences of default set is a reprieve in which their economic position seems to improve, if only temporarily.

That lag is our current reality and is what makes the maintenance of the status quo possible, but this reality has an expiration date set sometime as early as this coming summer when millions of borrowers enter formal default and start seeing their wages and Social Security checks automatically garnished without the need for a court order.

While the current administration has put into place some programs that will allow borrowers to continue to pause their payments (though not the accrual of interest on their debt) through the Fall of 2024, that really only adds 9 additional months to the clock while the larger problem still looms.

The federal government, specifically via actions taken by the executive branch, has attempted to address the student loan crisis more directly in recent years, and despite the fact that the Supreme Court ruled against their initial broader plan, the current administration has nonetheless successfully canceled more than 130 billion in federal student loan debt for more than 3 million borrowers.

Also, just a few days ago, there was an announcement that they would be seeking to cancel another chunk of debt in February for people who borrowed less than $12 thousand dollars and have been paying off those loans for at least 10 years, so efforts clearly remain ongoing for addressing the growing mountain of debt and its potential weight on the economy as a whole.

For government initiatives that seek to alleviate some of that burden, however, one of the major obstacles they face beyond passing judicial review is simply getting the word out to borrowers who may be most in need of the assistance and support. Borrowers in default are less likely to update their contact information, for one, and may have given up opening any correspondence related to their loans.

For example, while almost 7 million federal student loan borrowers have signed up for the federal student loan debt relief initiative known as the SAVE plan, more than 30 million borrowers are eligible, so there is still substantial room to increase adoption rates, to say the least.

This awareness gap highlights one of the opportunities that exists for employers to step in and help keep their employees informed about the programs that may be available to them, as well as helping them navigate the options they have available to them.

Even better, offering student loan repayment assistance with a matching contribution in lieu of retirement contribution matching may soon be a much more valuable benefit to a much larger portion of the workforce.

While it remains to be seen what will happen when the pause extensions expire and mass default - including the accompanying wage garnishments - becomes the new normal, the economic shockwaves seem likely to extend well beyond the financial concerns of individual borrowers.

For decades, borrowers, employers, and the US economy as a whole have all been benefiting from the existence of a highly educated labor pool, and that bill is likely going to be coming due for everyone involved sooner than later.

‍