America’s Student Loans Were Never Going to Be Repaid

[Editor’s Note: This article is from July 2023. The original article contains many interesting charts.]

In the early days of the Covid-19 pandemic, the federal government stopped requiring regular payments of student loan debt — a pause that has lasted more than three years. But student loan repayment had been dwindling for at least a decade before the pause.

You can imagine the stock of outstanding student debt as an overflowing bathtub: More students purchasing more undergraduate and advanced degrees at increasing tuition prices is the water gushing out of the faucet, and non-repayment is a blockage in the drain. The drain is blocked because despite what economists, policymakers and educational administrators claim, a college degree doesn’t always “pay off.”

In recent years, many Americans with student loans weren’t making enough money to pay even the accumulating interest on their debt, let alone make progress on the principal. Wage stagnation is a long-running phenomenon that worsened after the Great Recession. But an important additional source of student loan misery is the widening and diversifying nature of the Americans who take them out. It’s increasingly the case that people who were always going to have low earnings no matter their educational attainment are also overloaded with student debt — think of underpaid teachers who acquired expensive master’s degrees for only a modest pay increase. The promise of higher education leading directly to high incomes is hollow.

Regardless of what happens after the scheduled resumption of payments in September and to the Biden administration’s plans for partial student debt forgiveness after the Supreme Court’s ruling in June, we predict that most of the outstanding balances — not to mention the roughly $100 billion in new loans issued every year — won’t ever be repaid. {snip}

Our student debt research uses credit reports, both from an annual, representative cross-section of student borrowers and from a single group of borrowers we’ve been following since 2009. {snip} In 2020, 60.7 percent of outstanding student loans had a higher balance than when they were first issued. By 2022, that number had declined to 53.7 percent because interest was waived during the pandemic and some borrowers continued to pay down their principal.

The chart below compares repayment progress on loans in our 2020 cross-section with progress in 2022. The group with increasing balances shrank enormously during the repayment pause. Notably, Black and Latino borrowers had more loans with increasing balances before the pause; they benefit disproportionately while it remains in effect.

Student borrowers are not a monolithic group, and some demographic groups fare far better with their education debt than others. From the group of 2009-era debtors we’ve been following, we learned that female, Black and Latino borrowers generally saw their loan balances continue to increase above their 2009 level; male, white and Asian borrowers generally were able to make progress in paying their balances down (albeit not to zero — and the standard repayment term on federal loans is 10 years).

{snip}