More can be done to ease the heavy burden of student debt
The federal and state governments, along with educational institutions and student loan services, should make it easier for borrowers to understand their options and repay their debts over a reasonable time frame.
For more than three years, student loan borrowers have been able to defer payments on their debt. President Biden’s announcement last summer that he was canceling some debt for lower-income borrowers gave many hope that their loans would never come due. But the US Supreme Court struck down Biden’s loan forgiveness plan on June 30; student loans will start accruing interest in September, and borrowers will have to resume repaying them in October.
This was not just deeply disappointing news for the many thousands struggling to repay excessive student debt but will also cause a financial challenge for those who had applications for forgiveness approved — only to see the program nullified. Some borrowers also consolidated their loans to become eligible for forgiveness in a way that will result in higher interest rates.
According to the US Department of Education, in Massachusetts there are 891,500 borrowers who owe $30.7 billion in federal student loan debt and 380,000 who had applications for loan forgiveness approved before the program was struck down.
Higher education is inordinately expensive. The student loan system is confusing and rife with predatory practices. Given the uncertainty caused by Biden’s plan and the litigation, the federal and state governments, along with educational institutions and student loan services, should make it easier for borrowers to understand their options and repay their debts over a reasonable time frame.
Biden has said he is trying to find an alternative path to debt relief, but any proposal will likely be subject to legal challenges. In the meantime, the Biden administration’s newly created income-driven repayment plan, more generous than the plans currently offered, could be the best option for many lower-income borrowers. The plan will halve the dollar amount of monthly payments on undergraduate loans, from 10 percent to 5 percent of discretionary income, and allow people earning less than $32,805 a year to pay nothing. Those who borrowed less than $12,000 will have their loans forgiven after 10 years of payments, with longer terms for larger loans.
Biden is also offering a 12-month period where borrowers who miss payments will not be reported to credit bureaus or debt collection agencies — but borrowers should be careful about taking advantage of this since interest will accrue.
There are other existing student loan forgiveness programs. The federal government has a public service loan forgiveness program for those working in government or nonprofits. Massachusetts offers loan repayment assistance to health care professionals working in underserved communities. The state Legislature in the 2023 budget allocated money to repay up to $7,500 in student loans for public college graduates who commit to working four years as public school teachers, and that initiative will launch soon.
One role state government can play is helping borrowers navigate different repayment and forgiveness plans to find the best choice for them. The Legislature in 2021 established a student loan ombudsman, housed in the attorney general’s office, who is responsible for regulating student loan servicers, educating borrowers, and resolving student complaints. With proper funding, this office could be a good resource to publicize information about repayment and forgiveness plans, and provide tools to help borrowers navigate them.
The office should also be monitoring loan servicing companies to ensure these companies provide borrowers with accurate information and steer them toward programs that are most advantageous for the borrower. For example, student loan servicers should not be steering borrowers toward forbearance programs, where interest accrues, when an income-based repayment plan would save them more money.
Lawmakers can also reconsider the penalties for failing to repay student loans on time. Massachusetts remains one of fewer than 15 states where state licensure boards can revoke or deny professional licenses based on a student loan default — which can then make it harder for someone to earn money to repay their loans. Lawmakers last session passed a provision that would have prohibited state licensing boards and agencies from denying a license based on student debt default, but then-governor Charlie Baker did not sign it because he wanted to keep that authority intact for the Division of Banks, which issues financial services licenses. A similar bill has been introduced this session.
Employers can also play a role by helping employees repay student loans. Governor Maura Healey’s budget bill proposed making employer assistance with student loan repayment tax exempt, so those benefits would not be taxed by the state. A separate proposal, introduced by Representative Kate Lipper-Garabedian and supported by a state trade association for private colleges, would give companies a tax break if they help employees repay student loans.
While all these efforts could help past borrowers, an equally urgent need is to help future borrowers — and that means lowering the cost of higher education so students can get a degree without going into exorbitant levels of debt. This means funding for state and federal student scholarships, funding for public universities, and paths for high school students to take college courses. But it also involves a real look at what is needed to lower the underlying cost of higher education. If more schools lower their tuition, more students will be able to attend without having to take out loans in the first place.