Stop blaming borrowers for delinquent student loan debt

But for 43 million student loan borrowers in the U.S., 5 million of whom are in default, what happens when good debt turns bad?

Of 1.7 million borrowers in Georgia who owe a collective $69.8 billion in student loans, some are now plaintiffs in a recently filed class-action lawsuit that alleges harm because of operational failures by the U.S. Department of Education, according to Atlanta Journal-Constitution higher education reporter Jason Armesto.

The government paused student loan payments during the pandemic, but that action later became the subject of federal lawsuits leaving borrowers confused about the status of their loans.

Rather than create a solid plan for loan servicing to reengage borrowers, the Department of Education began reporting some of those loans to credit bureaus as delinquent. Borrowers only learned about their loan status when their credit scores dropped. On Friday, the Department paused a plan to garnish the wages of certain borrowers.

As if this is not enough cause for concern, an increasing number of student loan borrowers have resorted to filing for bankruptcy to get out of what feels like a black hole of student debt. Studies have shown that managing student loan debt has made it difficult for borrowers to keep up with bills, save for retirement or secure housing.

A student loan shouldn’t leave you with poor credit. A student loan shouldn’t impede your ability to purchase a home. A student loan shouldn’t push you into bankruptcy. A student loan should not prevent you from retiring. This isn’t merely good debt gone bad; it is good debt doing the exact opposite of what it should do.

The impulse is to blame borrowers for making poor financial decisions but as Wayne Johnson, the former Education Department official from Macon who is funding the class-action lawsuit against the Department said, “Do we really have that many deadbeat student loan borrowers?”

Credit: Miguel Martinez-Jimenez

Credit: Miguel Martinez-Jimenez

No. What we have is a deadbeat system.

And the individuals most in need of the lift that higher education might offer, students from lower- and middle-class backgrounds, are the ones most often harmed.

Upcoming changes to federal student loans which limit the amount of money students can borrow and reduce the ways they can repay those loans will likely have more devastating impacts on the most vulnerable students.

We have not done the best job of helping students understand the federal student loan system before they get caught in it.

A friend recently relayed a conversation with his daughter, a junior in high school, about finances for college. She stated that she did not want to accept money from certain family members because she did not want to feel indebted to them.

Her solution?

“I’d rather borrow from the government,” she said.

I’ve heard similar statements from other high school students who talk about borrowing from the government as if that is possible or preferred and as if the government has a personal stake in their achievement.

I imagine none of these students who are ripe and ready to jump headfirst into student loan programs are aware of what could be waiting for them on the other side.

At the other extreme are students who are so terrified of taking on student loan debt that they avoid college altogether.

How do we do a better job of making sure students and families have the information they need to make balanced decisions about student loans?

Experts advise discussing financial fit in a student’s junior year. But those conversations need to start earlier. Preparing early and demystifying the language and process of student loans is crucial.

Families should have a trusted source, namely college counselors, to help them analyze and compare offer letters. They should understand the process of financial aid appeals and how to seek payment plan options that might make it easier to cover college costs without taking loans.

Students heading to college after 2026, the year when substantial changes come to student loan borrowers, should make sure they understand how new loan limits and fewer repayment options will impact their ability to pursue certain careers. They should also know how to manage disputes that may arise during the loan repayment period.

We need to fix federal student loan system, and no, the new revisions don’t feel like a fix. But until we find the right solution, borrowers have to understand exactly what they are getting themselves into because in this case, a good debt isn’t always good.

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