The Trump administration is starting to put millions of defaulted student-loan borrowers into collections and threatening to confiscate their wages, tax refunds and federal benefits. WSJ’s Oyin Adedoyin digs into what the restart could mean for borrowers and the economy. Annie Minoff hosts. Further Listening: -Biden’s New Plan to Cancel Student Debt -Breaking Down Student Debt Relief Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What is the current state of student loans for borrowers?
Millions of Americans borrowed money from the federal government to go to college. Almost 43 million of them are still paying that money back.
It's a hard number to conceptualize, right? But the way I think about it is that if you don't have student loans yourself, then you probably know somebody who has student loans.
Our colleague Oyen Ededoyen covers personal finance. And for the past five years, she says paying those federal student loans felt more or less optional.
Chapter 2: How has the pandemic affected student loan payments?
The Biden administration will extend the pandemic-era freeze on those loan payments through August.
We're coming off of the piggyback of the pandemic, right? And that was a period where student loans virtually didn't exist. There were a lot of starts and stops when it came to student loan payments. You know, a lot of people were put in forbearance. A lot of people were put on pause. And so it seemed like we were in this very different, almost Twilight Zone effect when it came to the world.
Like a state of suspension. Yes, exactly. We were all kind of like, you know, fumbling about in outer space, not sure what the rules were. And now it seems like we're back on Earth. We're back in reality.
That's because last month, the Department of Education made an announcement.
Federal student loans are officially being referred to collections again. Millions of people now have to come up with the money or lose more of it.
This is part of a broader effort to roll back loan forgiveness policies. After years of leniency, the government is taking a different approach.
So if you were to sum up the government's message right now to borrowers, that message is? It's pay up or reap the consequences.
Welcome to The Journal, our show about money, business, and power. I'm Annie Minoff. It's Wednesday, May 28th. Coming up on the show, loan payments are back. Are borrowers ready?
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Chapter 3: What are the consequences of defaulting on student loans?
If they do fall into collections, then that means that they could get their wages garnished, which means, you know, money coming right out of your paycheck. Their tax refunds may be withheld. And other federal benefits like Social Security could also be diminished or taken away.
Defaulted borrowers could have their tax benefits withheld starting next month, and they could see up to 15% deducted from their paychecks later this summer. Secretary of Education Linda McMahon said that the department is making these moves to protect taxpayers, adding that they shouldn't have to serve as collateral for, quote, irresponsible student loan policies.
The government has been trying to help Americans pay for higher education for decades. The federal student loan program that we're familiar with today dates back to 1965. And what was the theory behind that?
Like, why underwrite people's education in that way? So higher education was seen as a means to propel people into different socioeconomic statuses to kind of change the course of their lives.
And so the idea, at least politically and socially at the time, was that if I go to college, then I might get a better job than my parents had or be able to propel myself into a higher tax bracket later in life. The whole general opinion was that college is a public good and therefore the government should subsidize that in some way.
And that's how Kristen Pickett thought about her student loans. So my loans began with my undergraduate degree.
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Chapter 4: What historical changes have occurred in student loan policies?
I was the first one.
Kristen graduated from college in 2005. She works part time as an adjunct professor and program director, and until recently worked at a nonprofit. She was the first in her family to go to college. And while she got some financial aid, it wasn't enough.
Middle of my freshman year, I was pulled into the financial aid office with this, either you take loans or you can't go to school anymore. So I took the loans and in my head, you know, early 2000s, it was like, oh, you're going to graduate and have this great job. And so I'm thinking, if it's like $500 a month, that won't be a big deal, right?
Kristen graduated with her bachelor's and then went on to get her master's degree. She even went for a second master's that she didn't finish. She thought the additional schooling would help propel her into a higher-paying job.
I thought that in the end it would move me forward and advance me in my, you know, in my pay it would be some kind of difference. But it wasn't.
Instead, she found herself paying down about $170,000 of student debt. When you kind of zoom back and think about this debt that you've carried over the years, how do you think it's impacted your decisions and just the way you've lived your life?
I remember when I got my first job as a professor in 2008 and I had like an adult job with adult pay. Like that was the best pay I had had. I remember I went to get a car and my uncle had to co-sign because I had this huge student loan debt.
When Kristen and her partner bought their house, they decided it would be better if Kristen wasn't on their mortgage application because of the amount of debt she carried. I'm not on our house because my student loans would actually impact our payment. And then in 2020, Kristen and other borrowers like her got an unexpected break.
The pandemic hit, and the Trump administration announced a pause on federal student loan payments.
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Chapter 5: How does student loan debt impact borrowers' lives?
Chapter 6: What are the implications of recent government announcements?
Federal student loans are officially being referred to collections again. Millions of people now have to come up with the money or lose more of it.
This is part of a broader effort to roll back loan forgiveness policies. After years of leniency, the government is taking a different approach.
So if you were to sum up the government's message right now to borrowers, that message is? It's pay up or reap the consequences.
Welcome to The Journal, our show about money, business, and power. I'm Annie Minoff. It's Wednesday, May 28th. Coming up on the show, loan payments are back. Are borrowers ready?
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Chapter 7: How do borrowers like Kristen Pickett view their student debt?
Instead, she found herself paying down about $170,000 of student debt. When you kind of zoom back and think about this debt that you've carried over the years, how do you think it's impacted your decisions and just the way you've lived your life?
I remember when I got my first job as a professor in 2008 and I had like an adult job with adult pay. Like that was the best pay I had had. I remember I went to get a car and my uncle had to co-sign because I had this huge student loan debt.
When Kristen and her partner bought their house, they decided it would be better if Kristen wasn't on their mortgage application because of the amount of debt she carried. I'm not on our house because my student loans would actually impact our payment. And then in 2020, Kristen and other borrowers like her got an unexpected break.
The pandemic hit, and the Trump administration announced a pause on federal student loan payments.
Did you take advantage of that pause? I did. My partner and I discussed it and we decided like it was a good thing for me to not pay them during the pause because I was able to do things I hadn't been able to do, like pay my car off and get ahead on medical bills, like things that I wouldn't have had the ability. So I took advantage of it.
I felt like I actually was an adult with an ability to take care of things.
How old were you when you were feeling like, yes, I've got this, I'm an adult? I was like 35, 36, something like that.
But it just felt good to be able to be like, okay, my car payment's usually $250, and because I'm not paying student loans, I'm going to pay $500 on it. So I paid my car off much faster. And... We were able to leave the state and buy a house and do things that like... You're like living your life. Yeah, at almost 40 years old, it was a great feeling.
And for some borrowers, it seemed like that great feeling could become the new normal.
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