Is student loan debt a national crisis? 48% of borrowers say so

The Supreme Court dealt a crushing blow to millions of Americans earlier this summer when it rejected President Joe Biden’s federal student loan forgiveness plan.

The pressure, however, for lawmakers to keep finding solutions to remedy the now $1.77 trillion debt burden may only just be beginning.

Nearly 1 in 3 Americans (or 31 percent) say the government hasn’t done enough to provide financial assistance to borrowers, including policies such as deferment or forgiveness. That’s higher than the 17 percent who say the government has done too much and 12 percent who say lawmakers have already done enough, according to a new Bankrate poll.

But for those with student loan debt, the share of Americans saying lawmakers should do more jumps to nearly half (or 48 percent). The same percentage of current borrowers also say student loan debt has become a national crisis, compared with about a third (or 32 percent) of Americans overall.

Bankrate’s key insights on how Americans feel about student loan debt

Has the federal government done enough to financially assist borrowers? Many Americans say no

Whether they’ve accrued student loan debt for themselves or have already paid it off, Americans are more likely to say the federal government hasn’t done enough to assist borrowers than too much or just enough. But those sentiments were shared more broadly among Americans who currently have student loan debt.

Just 10 percent of those current borrowers say the government has done too much, and 9 percent say it’s done enough, Bankrate’s poll found.

Yet, Americans who’ve already paid off their student loans are more likely than borrowers and non-borrowers alike to say the government has provided too much assistance (at 20 percent, versus 18 percent for those who’ve never borrowed). Another 14 percent of those who’ve already eliminated their balance say the government has done enough, versus 12 percent of non-borrowers.

The more education an American has, the more likely they are to agree that the government hasn’t provided enough financial assistance to borrowers, which breaks down as:

• 37 percent for those with postgraduate degrees;
• 34 percent for those with four-year diplomas;
• 32 percent of those with at least some college or a 2-year program; versus
• 26 percent of those with a high school diploma or less.

Men (at 20 percent) are slightly more likely than women (at 14 percent) to say the government has done too much. That likelihood persisted even for men with student loan debt, with 13 percent saying the government has done too much — almost two times higher than women with debt (at 7 percent).

Generation X (ages 43-58) and millennial (ages 27-42) borrowers were the most likely generations to imply that the government should do more to help, at a respective 59 percent and 47 percent, versus 40 percent of Generation Z borrowers (ages 18-26).

Baby boomers (at 22 percent for those between the ages of 59-77) are the most likely generation to feel the government has done too much, versus 16 percent of Gen X, 14 percent of millennials and 12 percent of Gen Z.

Americans earning between $80,000 and $99,999 a year — a group where more than two-fifths (or 43 percent) have taken out student loan debt for themselves — are the income bracket most likely to say the government hasn’t done enough, at 37 percent, Bankrate’s poll found. That compares with 30 percent of those making $100,000 or more a year, 31 percent of those earning between $50,000 and $79,999 a year as well as 31 percent making less than $50,000 annually.

Inside the trillion-dollar burden: Americans with student loan debt feel behind

Many Americans are indicating the government should do more to support student loan borrowers as they sit on the precipice of federal payments resuming for the first time in more than three years — taking steam away from an economy already on fragile ground and putting borrowers under the strain of having to make payments again.

The majority of households with student debt have had to put off major financial decisions and milestones because of their loans. They’re delaying buying a house, having children or getting married, and are saving less for retirement or emergencies, previous Bankrate surveys have found.

An emergency fund is the safety net that keeps Americans from incurring high-cost debt to cover an unexpected expense in a pinch — a barrier that’s even more crucial now that credit card rates are at record levels.

Less savings and higher debts make it harder to qualify for a mortgage and buy a home, a feature that about two-thirds (or 66 percent) of Gen Zers and millennials consider part of the American dream.

Not to mention, time out of the market can be detrimental to Americans’ wealth-building opportunities. An American who puts $200 into an investing account a month starting at age 22 could reap as much as $1.2 million by the time they’re 70, assuming an 8 percent annual return, Bankrate calculations show. That number falls to about $703,000 if Americans can only afford to contribute half of that amount for their first 20 years of investing, assuming that’s how long it takes them to pay off their debt.

Americans with student debt were paying between $200 and $299 per month on their loans back in 2019, Federal Reserve data shows. It amounts to about $73 billion annually, almost a quarter of a percent of the U.S. economy’s total economic output, economists at Moody’s Analytics estimate. If Americans don’t see any meaningful boost to their income before those payments come due in October, households may trim a modest 0.2 percent from consumer spending next year, Assistant Director Bernard Yaros writes.

But it doesn’t erase the growing financial hardship. About 1 in 5 student loan borrowers are likely to struggle once their payments resume, data from the Consumer Financial Protection Bureau shows. Half of borrowers who are about to start making payments again have non-student loans and non-mortgage debts that are at least 10 percent higher than before the pause began in early 2020, the report also shows. Not only have they taken on more debt, but interest rates are also higher, leading to more expensive monthly payments.

The return of student loan payments could put the most vulnerable student loan borrowers in an even more harrowing position. Americans who were delinquent on their loans in the 24 months prior to March 2020 took on 12.3 percent more credit card debt and 4.5 percent more auto-loan debt compared to students who weren’t eligible for the payment pause, research from professors at Yale University and Georgia Tech University finds.

Loan delinquency rates for Americans between the ages of 18-29 — who owe about 34 percent of all student loan debt — are picking up at a faster pace than other age groups, data from the New York Fed’s second quarter household credit report reveals.

Is student loan debt a national crisis? These Americans think so

Borrowers who are currently saddled with student loan debt are more likely than any other group — non-borrowers and borrowers who’ve already paid their balances off — to describe student loan debt as a national crisis, at 48 percent.

About a third (or 34 percent) of those who’ve already paid off their loans would describe the situation as a crisis, along with 27 percent who’ve never had debt.

Women who have debt (at 49 percent) are slightly more likely than men who have debt (46 percent) to say so.

And borrowers and non-borrowers combined, all Americans overall with at least some college education (at 37 percent) are more likely than those who have a high school diploma or less (24 percent) to call student loan debt a crisis.

Higher-income groups were also more likely to call the situation a crisis, at:

• 37 percent for those earning more than $100,000 a year; and
• 37 percent for those making between $80,000 and $99,999; versus
• 32 percent for those making between $50,000 and $79,999; and
• 30 percent of those making under $50,000 a year.

At 49 percent, Americans earning $100,000 or more a year were the most likely to have taken out loans for their education, Bankrate’s poll found. But they’re also the group most likely to have paid off their debt, at 33 percent.

Less than a third of Americans agree that student loan borrowers should be fully responsible for their student loan debt

When it comes to who bears the responsibility of federal student loan repayment, just 30 percent of Americans agree that borrowers should have to pay back their debt in full. That number rises slightly to 33 percent for both the Americans who’ve already paid off their debt, as well as those who never borrowed for their education.

Yet, Americans who currently have student loan debt are half as likely as Americans overall to share that same sentiment (at 15 percent).

Men (34 percent) are slightly more likely than women (27 percent) to believe borrowers bear full responsibility to repay their balance. Older generations also share those opinions, at 43 percent of boomers and 31 percent of Gen Xers versus 18 percent of Gen Z and 20 percent of millennials.

In fact, Gen Z is more likely to believe borrowers are responsible for their student loan debt if they already have loans. About 1-in-5 Gen Z borrowers (22 percent) say borrowers should be entirely responsible for their balance, versus 16 percent of Gen Zers who never borrowed.

The country’s top earners are most likely to think the responsibility of paying back student loan debt rests with the borrower, at:

• 36 percent for those making $100,000 or more a year;
• 32 percent for those earning between $80,000 and $99,999;
• 33 percent of those making between $50,000 and $79,999; and
• 26 percent of those earning less than $50,000.

With forbearance ending and forgiveness ending, borrowers face uncertain next steps

Hours after the Supreme Court axed Biden’s plan to cancel up to $20,000 in student debt for eligible borrowers, the chief executive announced a Plan B: Moving forward with forgiveness by invoking different legislation.

The new law, the Higher Education Act of 1965, grants the Secretary of Education the power to “enforce, pay, compromise, waive or release any right, title, claim, lien or demand, however acquired, including any equity or any right of redemption,” the bill states.

Biden’s original forgiveness plan relied on the HEROES Act of 2003, which permits the education secretary to tinker with student loans during national emergencies to offset any economic hardship. That same law is how former President Donald Trump introduced the original forbearance moratorium right when the economy plunged into the depths of the coronavirus pandemic.

“This new path is legally sound,” Biden said in a June 30 address from the White House. “It’s going to take longer, and in my view, is the best path that remains in providing for as many borrowers as possible.”

Experts, however, say the proposal will undoubtedly face legal challenges — and likely require another wait in an even longer limbo period than before. Borrowers might not know for years whether the administration will be allowed to move forward with the proposal, giving them little certainty to rely on.

They also question whether one-time forgiveness is the ultimate panacea. Debt cancellation would do little to address expensive tuition costs. Some even argue forgiveness may make pricey college worse — especially if students think less about how much they’re borrowing and universities raise prices expecting that more forgiveness will come down the road.

In the 30 school years spanning 1992-2023, average published tuition and fees increased 65 percent at public two-year schools and 125 percent at public four-year universities when adjusted for inflation, according to the College Board’s trends in college pricing and student aid for 2022.

More-targeted policies could look like ramping up investments in higher education at the state level, pouring more funding into pell grants and including institutions in the student loan risk sharing, according to recommendations from Bipartisan Policy Center, a nonpartisan think tank.

“I don’t think forgiveness or cancellation is a magic wand,” says Tristan Stein, associate director of higher education at the agency. “You need comprehensive solutions, and you need to address these various elements together in order to really change the trajectory and put the system of higher education on a path that promotes more affordability, more accountability and better outcomes for students.”

Amid those pricey college tuition costs, more than half of Americans (or 56 percent) say higher education costs have gotten out of hand — a statement that current and past borrowers combined (at 58 percent) and non-borrowers (55 percent) agree with.

Older generations were also more likely to share those sentiments, with 67 percent of baby boomers and 61 percent of Gen Xers believing higher education costs have gotten out of hand compared to 45 percent of millennials and 43 percent of Gen Z.

Americans (at 44 percent) also largely believe that students aren’t educated enough about the ramifications of taking on that debt before they borrow, and the share of Americans who agree with that statement remains high regardless of whether they have current debt (at 47 percent), have never borrowed (at 42 percent) or no longer have debt (49 percent).

Borrowers aren’t aware of their options, this credit counselor says

Many experts are noticing that the back-and-forth with student loan forgiveness has made borrowers less aware of the options they already have.

“The feedback we’re getting is that a lot of folks are confused now. They’re thinking, ‘OK, all forgiveness is no longer available,’” says David Flores, director of client services and program performance at nonprofit counseling credit counselor GreenPath Financial Wellness. “We’ve had to spend some time educating folks that this was a different forgiveness program. Other programs still exist, you can take advantage of it, and here’s how.”

For now, the only certainty is that student loan forbearance is ending. That clock is ticking. Interest resumes Sept. 1, and payments begin again in October.

Flores has seen an influx of calls — 55 percent more than this time last year, he estimates — from anxious clients looking for advice. He’s hired 20 new counselors to prepare for the volume. Those borrowers aren’t just concerned about the return of those payments, he says. They’re also worried about the new debt they’ve incurred since the pause began and how they’ll make room for it all in a rising-rate, inflationary environment.

“It’s a perfect storm of economic conditions that are causing and student loan repayment is part of it,” he says. With the extra cash over the past three years, “in some cases, they did save, but not all.”

Drowning in student loan debt and wondering where to start? Take these 5 steps before payments resume

Student loan debt is a double-edged sword, and it can be equally rewarding and costly. On the one hand, higher education bolsters Americans’ earnings opportunities — helping them compete for better-paying jobs and remain more likely to be employed during recessions. But on the other hand, the opportunity costs of that debt can make the price of college loans even greater than the original, principal amount. Frequently finding it harder to save for emergencies, retirement and home-buying, Americans may feel like their student loan debt is keeping them from getting their life started.

“With rising federal debt and deficits, it is hard to imagine a scenario where federal or state dollars are suddenly going to start flowing into education,” Hamrick says. “That suggests that some students who need funding beyond their own resources, or scholarships or other forms of aid, will opt for borrowing to close the gap. That means total student loan debt is set to rise further in the years ahead.”

If you’re a student loan borrower who feels like you’re out of options as the key repayment deadline approaches, the sooner you get started on figuring out your game plan, the better.

1. Know what assistance is already out there for you — and the ways you already can get forgiveness

Borrowers’ first step should be estimating how much they’ll pay monthly once their student loans come due again. If you can enroll in an income-driven repayment plan, your payment may be as little as $0 a month. After making payments for a set number of years, you could even get your remaining balance forgiven.

“Most of the advice we start off with when we identify that individuals have student loans is, we educate them on the different repayment options,” Flores says. “More often than not, folks have not looked into those income-based, pay-as-you-earn type programs that are available for their federal student loan.”

To apply for any income-based program, borrowers will have to fill out an income-driven repayment plan request.

You’ll also have to recertify each year, after which your payment could go up if your income has also increased. Each of those programs also has its own eligibility requirements. In some cases, it might not make sense for you to enroll even if you are eligible — especially if you’d have to pay more than you would under the standard repayment plan.

Income-based repayment programs

Income-based repayment programs use your income and family size to determine your monthly payment. Typically, they’re based on a percentage of your discretionary income — defined as the difference between your adjusted gross income (AGI) and 150 percent of the federal poverty line (for individuals, for example, that’d be your annual income minus $21,870 according to the U.S. Department of Health and Human Services).

The Department of Education currently offers four main programs:

• Revised Pay As You Earn Repayment Plan (REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)

Under all four plans, any remaining loan balance that isn’t fully repaid at the end of the repayment period is forgiven.

Each of those plans have differing repayment periods and discretionary income calculations. REPAYE, for example, lasts 20 years on undergraduate loans and 25 years on graduate or professional degrees. Payments are 10 percent of your discretionary income.

To determine which program is right for you, utilize the Department of Education’s Student Aid resources, including its loan simulator tool.

Saving on a Valuable Education (SAVE) plan

But coming soon is a revamp of those income-based repayment plans: The Saving on a Valuable Education (SAVE) Plan. The new program is slated to go into full effect by July 2024, but some key money-saving benefits will debut before payments resume this fall. Eventually, the new plan will replace the REPAYE plan, and borrowers who are already enrolled will automatically get the benefits.

The SAVE plan will decrease borrowers’ monthly payments even more by basing payments on 225 percent of the poverty line, instead of 150 percent, the Biden administration says.

That means, single borrowers earning $32,800 or less or a family of four earning at most $67,500 in the continental U.S. wouldn’t have to pay anything a month.

The best bonus of all: A faster forgiveness timeline. Those who borrowed $12,000 or less in federal loans will receive forgiveness after 10 years of making payments, while every additional $1,000 borrowed adds an extra year toward that forgiveness timetable. For example, someone who borrowed $14,000 would see forgiveness after 12 years, according to the Department of Education.

Meanwhile, if you’re a first responder, teacher or work for a nonprofit, you may also be eligible for Public Service Loan Forgiveness (PSLF), which requires 10 years of payments for forgiveness. Flores himself is coming up on the one-year anniversary of when he officially discharged over $200,000 of his own student loan debt from law school utilizing the program.

“It’s just a matter of education,” he says. “Not a lot of people who would benefit from those programs even know they exist or are taking advantage of them.”

2. Look at your budget, and move money around

Not only have borrowers incurred more debt since they were last making student loan payments, but they could’ve also started families, gotten married, moved to a new city or gone through other major changes in their financial lives. It illustrates how important it is to familiarize yourself with your budget when you know how much your payment will be.

Look at the money you have coming in every month and the money flowing out. Note your essential expenses, like your rent or mortgage, credit card bill, grocery bill, utilities or car payment. Then, calculate how much money you’ve been spending on non-discretionary purchases.

See how your new student loan payment would fit in. If you’d have a budget deficit, it might be wise to consider cutting back on some of those non-essential items. A good place to start is often subscription services, shopping trips or meals out.

3. If you can’t make your payments, do this with your loans

If you don’t think you can make your payments, you can apply for additional forbearance or deferment — but you should make sure you’ve exhausted all your options first. Interest will still accrue, and borrowers should make sure they’re only using it when they really need it since there’s a limit (typically, up to 12 months at a time for a maximum of 36 months is what’s allowed).

Perhaps you don’t think you can make payments because of credit card debt. In this case, it might make sense for you to calculate the cost of transferring that credit card debt over to a balance transfer offer. The process often comes with a fixed fee, but it may be a worthwhile cost if it helps you shave hundreds, if not thousands, of dollars off your monthly interest payments. You can make payments over time during a 0 percent introductory offer as long as 21 months.

Maybe you’re considering applying for a deferment because you have an economic hardship, such as unemployment or low income. In those cases, it might make more sense for you to enroll in an income-driven repayment plan — especially if it’s still $0 a month. That way, you can continue to make payments that technically still qualify for forgiveness down the road.

“The payments you’re not making won’t count toward any type of student loan forgiveness program,” says Kia McCallister-Young, director of America Saves, a national personal finance nonprofit. “If you decide to miss a payment or have a late payment, then that interest is going to accrue.”

If none of those choices makes sense for your personal finances, know that most deferments are not automatic. You’ll need to work with your specific loan servicer and most likely submit a form.

To help borrowers get back in the habit of making payments, the Biden administration introduced a new “on-ramp” program. Borrowers who miss monthly payments anytime between Oct. 1 until Sept. 30, 2024 won’t be considered delinquent, reported to credit bureaus, placed in fault or referred to debt collection agencies. Experts, however, say that isn’t a reason to stop making payments altogether.

“It’s essentially just kicking the can down the road,” Young says. “If you take advantage of that on-ramp period, make sure that you are slowly but surely adjusting your spending and savings to make room for these payments.”

4. Think about your earnings potential before you borrow

It’s important for students to go into borrowing for their education with eyes wide open. One rule of thumb: Avoid taking out a bigger balance than what your salary could be after graduation. Once you’ve picked your field, consider utilizing the Department of Labor’s resources to help you learn what a realistic career path for you could look like. Before those payments come due, it might also be wise to calculate your monthly payment once you’ve graduated, so you have a realistic idea of what your budget will look like.

Borrowers should also research all of their options. With the lower rates and most flexible repayment plans, federal student loans are usually the best choice. But if you’ve already maxed out what the government is offering you, you may have to turn to private lenders. Make sure you’ve compared multiple private student loan rates and offers to find the plan that works best with your budget. Some private lenders have more flexible repayment terms than others.

Keep in mind, however, that you’ll have to budget for both payments. Borrowers can’t consolidate both their federal and private student loans into one payment through the U.S. Department of Education’s Direct Consolidation Loan program.

“Those who obtain college degrees, as opposed to those who don’t graduate but still have some student loan debt are typically in better positions to get better jobs with higher incomes,” Hamrick says. “However, individuals and households are affected depending on their own levels of student loan debt coinciding with their experience with other aspects of their personal finances.”

5. Never sacrifice your financial goals if it means paying off your debt early

No one wants to be in debt. But in a world where Americans live on limited resources, be careful about where you spend your time, funds and effort. Remember those opportunity costs.

For example, it might not make sense for you to choose the most aggressive repayment program if it means sacrificing saving for retirement or investing for longer-term goals. That may give your student loan debt even more power to harm your finances in the future.

Remember, it’s the habit and the time you give yourself to get started that matter most. Consider contributing enough funds to your employer-sponsored retirement plan to take advantage of a match, if your workplace offers one. And even if you move forward with the least-aggressive student loan payment option now, you can always adjust those payments down the road along with your financial goals. With inflation elevated and rates high, being aggressive just might not be a viable financial option right now for many Americans, Young says.

“Even though economists seem to not be worried about it, on the ground when you’re talking to everyday people, they’re not ready,” she adds. “Everyday Americans are feeling the squeeze, and this is just going to add to it.”

• Methodology

  Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 3,684 U.S. adults, of whom 1,400 have ever had a student loan and 588 currently have student loan debt. Fieldwork was undertaken on June 12-15, 2023. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.