After years of organizing by advocacy groups, the Biden administration announced in August that anyone earning less than $125,000 a year in the US will get $10,000 deducted from their undergraduate student debt burden from federal loans. For people who received Pell grants, which are reserved for low-income students, the relief will be as high as $20,000. 

The brief application for student loan debt relief officially launched this week. The US Department of Education said approvals will start as soon as Sunday, Oct. 23, with an expected four-to-six-week wait for processing.

With student loan payments expected to resume at the start of the new year after an over two-year moratorium, advocates argue the measure will make monthly payments more manageable for tens of millions of Americans, allowing them to invest in their futures.

Amid the ongoing disruptions of the COVID-19 pandemic and the worsening impact of cost-of-living inflation, advocates have called for bolder action to liberate young people from the yolk of debt, especially those living in poverty. In recent years, they argue, student debt has become more quicksand than a flight-path for young people as tuition rates surge past wage levels and prospects in many fields dwindle, with potential ripple effects across the world. 

Braxton Brewer, press secretary for the Debt Collective — a debtors’ union calling for the cancelation of student loan debt — explained that several other industrialized nations offer free college or have policies in place to offset the costs of higher education, and that public universities across the US once offered free college, lessening the burden on individual students. 

“If you think about it this way, people who are wealthy, who are able to pay for the cost of college upfront, end up paying less for college than poor people,” Brewer told Global Citizen. “It’s operating as a poverty tax, because people are paying far more in interest.”

Currently, 44 million people are burdened with $1.7 trillion in student loan debt in the US, a figure rife with racial and class disparities that have doubled in the past decade. The average borrower owes nearly $30,000 and pays roughly $300 per month, but more than 3 million borrowers have outstanding balances greater than $100,000 and monthly payments can sometimes reach into the thousands of dollars. With ever-accumulating interest rates, some students never even chip away at their premiums

“Student loan debt is more than credit card and medical debt combined,” Brewer said. “It's a particularly predatory type of debt, more so than other types of household debt. 

“The interest is super high and there aren’t a lot of backstops for dealing with student loan debt as opposed to other types of debt,” he added. “There's no bankruptcy protection, and it's one of the only types of debt where the government can garnish your wages and social security checks.”

For the more than half of recent college graduates who struggle to find jobs commensurate with their degrees, this debt often prevents them from starting families, investing in homes, and starting businesses.

Prior to the COVID-19 pandemic, more than 1 million Americans defaulted on their student loans every year, entering onerous third-party collection proceedings that could undermine their earning potential for years to come. 

It wasn’t always this grim. For decades, students who took out loans for college were able to pay them off. But tuition rates began to substantially outpace wage growth beginning in the 1980s. Between 1980 and 2019, wages climbed a mere 19% for young workers as college costs soared 169%. The financial crisis of 2008 then plunged a generation of young people into chronic underemployment

Advocates like Brewer say the quest to use higher education as a bridge to gainful employment, once powerful in its possibilities, has faltered in its legitimacy, especially for people living in poverty. 

“Student debt is stripping people’s chances of achieving the American Dream, which has become more so about [not] having zero dollars,” Brewer said. “People now say: ‘If I can not have negative net wealth, that would be great.’”

Higher education is less accessible to people living in poverty, and the opportunities afforded to them once they leave school are often less abundant. As a result, the student loan crisis exacerbates poverty for millions of Americans

Here are five ways the student loan debt relief measure could help combat poverty.  

1. People of color will benefit the most from student loan forgiveness. 

The debt relief plan targets low- and middle-income families and, according to the White House, will benefit 43 million people and 95% of borrowers. 

People of color carry most of the student loan debt burden yet lack the intergenerational wealth to pay it back, and the pandemic has only made it even more difficult. The average Black borrower will have half of their student loan balance reduced and more than 1 in 4 Black borrowers will have their balance forgiven. Meanwhile, about half of Latinx borrowers will have their entire federal loan debt forgiven.

“The cost of tuition has skyrocketed, in the past decade especially,” Brewer said. “And it’s being most felt by women, and Black and Hispanic borrowers. They’re often going to higher education to make up for racism and sexism in the labor market and end up being made worse off by the debt.” 

The majority of the relief money, 87%, will go to those earning less than $75,000 annually. Borrowers with the smallest debts tend to be low- and middle-income and are the most likely to default on their student loans. Defaulting on loans can perpetuate poverty by negatively impacting credit scores, which can make someone less qualified for owning a home, put them at an employment disadvantage, and raise costs for other forms of credit.

Women hold two-thirds of student loan debt in the US and take longer to pay back their debts than men due to the gender pay gap and higher child care costs. And despite being the most educated demographic, Black women hold the most debt in the US.

2. Relief could help offset rising costs of living.

The cost of living has risen worldwide over the past year because of increased prices of everyday items and supply chain disruptions driven by the COVID-19 pandemic, climate change, and conflicts, especially the Russian invasion of Ukraine.

For two-thirds of Americans, the rising cost of housing, groceries, utilities, and health care has strained their bank accounts, making check-to-check living the norm across the country.

Adding student loan repayments to this monthly equation is untenable for millions of Americans — 58% of student loan borrowers reported that they won’t be able to resume payments because they don’t have enough money

3. Less debt means more funds for basic needs like food.

In 2019, 30% of college students said they often go hungry because the costs of education leave little money left for food, according to a survey. When the COVID-19 pandemic hit, this problem worsened, not just across college campuses but throughout the US. In June 2022, 10.5% of households reported that they didn’t have enough food to eat

Student loan relief means people can allocate more money to getting enough and better quality food to avoid going hungry. 

4. Low-income borrowers will receive the most relief.

The Federal Pell Grant Program was launched as part of the Higher Education Act of Related Stories1965 (HEA) to support low-income families through federal funds. The form of need-based financial aid can be applied at any school, doesn’t need to be repaid or have interest rates, and can cover tuition, fees, room and board, and other expenses. Awards maxed out at $6,495 during the 2021-2022 school year. At some institutions, students must maintain academic requirements to remain eligible for the grant. 

The majority of Black student loan borrowers, between 83% and 88%, receive a Pell grant at least once while attending college. It is estimated that 8 in 10 Black student loan borrowers may qualify for up to $20,000 in forgiveness. 

5. Student loan forgiveness has the potential to reduce the racial wealth gap.

Federal student loans were one of several policies President Lyndon B. Johnson introduced in the 1960s to address the high poverty rate. According to the book The Debt Trap by Josh Mitchell, Johnson sought to make higher education more accessible and help tackle racial inequality, but when banks started raising interest rates on student loans, more borrowers — many of them people of color — fell further into debt. 

When Black students go to college, they’re already at a financial disadvantage due to racial discrimination and systemic barriers. Black families start off with less wealth to support higher education and then are more likely to borrow, borrow more, and struggle with repayment. 

Historically Black colleges and universities also receive less federal funding and students of color are more likely to attend predatory institutions. Higher education is often touted as a way for people to lift themselves out of poverty, but when Black and Latinx students do graduate, they are then faced with employment discrimination and go on to make less than their white peers. Two decades after taking out their student loans, the median Black borrower still owes 95% of their debt compared to the median white borrower, who has paid off 94% of their debt. What’s more, white college graduates have over seven times more wealth than Black college graduates.

Advocates argue that student loan debt forgiveness has the potential to even the playing field and lessen the racial wealth gap to help people of color escape poverty, achieve financial stability, and better plan for their futures. 

“You can make a case that any country hampering who has access to education just creates very bad consequences that ripple across the globe,” Brewer said. “When you limit education to people who can afford it, it prevents us from making all sorts of advances, particularly in science and humanities. There’s a very strong pedagogical case for opening up education.

“We continue the current system at the cost of widespread indebtedness, which is a threat to democracy, economic productivity, and generational wealth,” he said.  

News

Defeat Poverty

5 Ways Student Loan Debt Relief Could Help Combat Poverty

By Joe McCarthy  and  Leah Rodriguez