Utah residents have almost $11 million in student loan debt. And soon, the federal government is coming to collect it from defaulters.
The government paused loan repayment in March 2020, near the beginning of the pandemic. That gave borrowers a five-year reprieve. But now, the U.S. Department of Education said it will resume collection of defaulted student loans on May 5. Borrowers are being told to start making payments or enroll in a payment plan. If they don’t, the Office of Federal Student Aid is expected to start garnishing wages this summer.
Marshall Steinbaum, an assistant professor of economics at the University of Utah and a senior fellow in higher education finance at the Jain Family Institute, doesn’t think Utahns are prepared for the impending collection.
“I don't know how people who have not been making payments on defaulted loans for five years are going to come up with the money that quickly,” Steinbaum said. “We'll see what kind of backlash ensues to it.”
The department said it is starting this collection to take the burden off American taxpayers. According to its data, nationally, only 38% of borrowers are in repayment and up-to-date on their student loans, and more than 5 million borrowers haven’t made a monthly payment in almost a year.
Steinbaum said the reason people aren’t paying back their loans is simple. They can’t afford to.
“They're generally very poorly off people,” Steinbaum said. “They're not earning very much money, and they tend to be people who did not complete a degree.”
Non-traditional students, meaning they started college later in life, have children or work full-time, are less likely to finish a degree. When the load becomes too much, Steinbaum said their other obligations come first. But they still have the debt to pay.
“If you think, ‘OK, well, this was an attempt to try to find a better job, and it didn't work out, given my life circumstances. I've got the debt from that attempt, but I don't have any of the benefit,’” Steinbaum said.
Paying back these loans, he said, is probably low on their priority list.
The recent budget cuts to higher education don't help either. Steinbaum thinks they are enhancing the student loan problem by making tuition more expensive.
“The source of the student debt crisis in particular is a kind of tripartite bargain between state legislatures that want to cut funding for public higher education institutions and their administration that say, ‘OK, well, if you're not going to fund us, at least let us raise tuition and proliferate programs that tend to have high tuition amounts and try to get our students to enroll in more and more degrees,” Steinbaum said.
In the end, he said, it’s the student borrowers who lose the most.
“I just remember the politics of student debt during the Biden administration, basically having a bunch of Utah elected officials denigrating student borrowers in what I would consider to be totally unfair terms,” Steinbaum said.
The federal student loan system has failed, he noted. But it’s not the fault of the students.
“The federal government believed that taking out student loans would cause people's incomes to increase because they'd be getting more education than they otherwise would, and then, basically, those loans would pay for themselves with that higher income,” Steinbaum said.
“That just has not been the case.”
