Kayla Camacho was halfway through with her master’s degree when federal student loan payments were suspended in March 2020.
When she graduated last year, Camacho put the money she would have spent paying off her $68,000 debt into savings and her younger siblings, buying flights back home to Orange County, California for a sister and dancing shoes for another. As the first in her family to graduate from college, Camacho became the family safety net.
But the pandemic relief was always meant to be temporary. Camacho and tens of millions of other borrowers have spent months preparing for the pause’s expiration date to draw near, only to be pushed back multiple times — it’s now set for August 31.
“The uncertainty and the waiting game — not knowing — is almost as stressful,” she said.
The hiatus and associated zero interest rates have given borrowers a chance to breathe and regroup, allowing them to spend the past two years paying off credit cards and car registrations, saving for home downpayments, and building emergency funds, sometimes for first-timers time in their adult life.
Now, ahead of the midterm elections, the Biden administration must come up with a student debt relief plan that doesn’t add to inflation concerns while being generous enough to please borrowers who had a preview of what debt relief might look like. After months of delays, President Joe Biden is expected to announce in the coming weeks that the government will forgive at least $10,000 in debt to people earning less than $125,000, according to news reports.
If the move survives a likely legal challenge, it would eliminate a significant portion of the debt for millions of borrowers — the average federal student loan burden is $37,000. A total of 43 million Americans owe the federal government a combined $1.6 trillion, the highest amount of consumer debt in the United States after mortgages. In California alone, 3.8 million residents owe $141.8 billion in debt, the largest proportion of any state.
But depending on who’s asked, for some borrowers $10,000 in forgiveness would go too far — or not far enough. Opponents of the loan forgiveness say it would be expensive and regressive, with the greatest benefit accruing to college-educated borrowers, who tend to have higher incomes.
“My main concern is that the money is going to be really badly spent,” said Marc Goldwein, senior policy director at the Federal Budget Governance Committee, a nonpartisan think tank. The plan “will really help some people, but it will go disproportionately to people who don’t need it.”
Debt relief advocates want the president to climb above $10,000, ensure aid is granted automatically — not through an application process — and remove the income cap, which they argue will hurt Black and Latino borrowers who are less Have generational wealth and are disproportionately affected by student loans.
Black and Hispanic borrowers take longer to repay their loans and are more likely to default than White and Asian borrowers.
“We need debt relief that is truly designed to benefit as many Americans as possible,” said Cody Hounanian, executive director of the Student Debt Crisis Center, which advocates for borrowers and supports full debt forgiveness.
Biden is also facing increasing pressure to end the repayment pause. Republicans have complained about the cost, an estimated $5 billion a month, saying it’s an attempt to boost Biden’s pre-election poll ratings and a gateway to debt relief.
Meanwhile, some Democrats have been pushing for the president to forgive up to $50,000 in debt. They warn that doing nothing to help all borrowers is not a viable option, especially ahead of midterm elections, when Democrats need the support of younger voters to secure a narrow majority in the House and Senate.
The government’s federal student-loan portfolio has more than quintupled since 2004, when it was $250 billion. That increase was driven by more students entering college, borrowing larger amounts, and taking longer to pay back the money, according to the Congressional Budget Office.
“Before payments were suspended, another student borrower defaulted on a loan every 26 seconds,” said Mike Pierce, executive director of the Student Borrower Protection Center’s advocacy group, referring to people who are 270 days behind on payments. “No one should rush back into this world without actually repairing student loans and debt.”
The debt has impacted borrowers’ ability to buy homes and save for retirement. For many, debt has become a barrier to achieving the middle-class life that college should provide.
Camacho said she always took higher education for granted. The question was to pay.
“Going to college was something like, ‘You have to go to college so you can get a good job and so you don’t have to continue this cycle of poverty,'” the 29-year-old said. who pays $1,750 a month for a studio in Anaheim.
Her parents, high school sweethearts who got her young, sometimes struggled to make ends meet. Camacho recalled that unexpected emergencies like a car breakdown meant the family had to ask for help or turn to payday loans. In 2012, while she was in college, they lost their home.
Her parents rented apartments in an affluent Orange County suburb with good schools so that Camacho and her three younger siblings would have more opportunities. It paid off: she took Advanced Placement courses and got good grades. She spent six years in show choir and wrote about her experiences in her college essays.
In 2010, Camacho enrolled at Chapman University, a private four-year institution near her hometown that offered a generous financial aid package. She lived at home and paid for school with a combination of scholarships, money she made in retail and on campus, and thousands of government student loans.
Camacho earned a bachelor’s degree in English in 2014, began working as a high school English teacher through Teach for America that same year, and began repaying the loan.
“It would be zero at the end of the month,” she said, referring to her bank balance. “I didn’t have any extra money … That (loan) car payment just becomes a looming thing that you try to forget about, but it’s always in the back of your mind.”
She returned to Chapman in 2018 for a master’s degree in leadership development and took on even more debt.
If she could do it again, she would ignore the advice she received as a high school senior: Get yourself into the best possible school, whatever the cost.
“Luckily, it all got me to where I am today, which is great — but with a very hefty bottle of credit,” she said.
Under the terms of her 20-year repayment plan, when repayment resumes, she owes $429 a month on both her debt and graduates, about 12% of her net salary.
Supporters and opponents of the credit forgiveness agree that an extension of the current moratorium is not sustainable. The longer the pause lasts, the harder it can be for borrowers to keep up with payments.
“All hell is going to break loose when this thing restarts,” said Dalié Jiménez, director of the Student Loan Law Initiative at the University of California at the Irvine School of Law, of the loan repayment resumption. “This takes quite a bit of ramping up… to do well.”
Borrowers may have changed addresses, making it harder for their loan servicers to reach them, or they may have failed to budget for repayment, Jiménez said.
Then there’s the cost. The Department of Education estimated that loan deferrals due to COVID-related hardship resulted in $98.4 billion in lost revenue in fiscal years 2020 and 2021.
According to the Committee on Good Federal Budgeting, that amount is twice the cost of funding two years of community college for Americans over the course of five years, a provision in Biden’s failed welfare spending bill. According to the Federal Reserve Bank of New York, if Biden elects to cancel $10,000 in debt on every student loan borrower, it would cost $321 billion and wipe out debt for nearly 12 million people.
“It was a great emergency measure,” said Sandy Baum, a senior fellow at the Urban Institute’s Income and Benefits Policy Center, of the extended moratorium. “But now the unemployment rate is really low. It’s not that people don’t have jobs… people are just as well placed to pay off their loans as they were before the pandemic.”
There’s a key reason Biden has been reluctant to address student debt without Congress.
“It’s very likely to be challenged in court, which would then delay or prevent the forgiveness promised to borrowers,” said Michelle Dimino, senior education policy adviser at Third Way, a centrist Democratic think tank.
Dimino noted that for most of his presidency, Biden has focused more on better enforcement of existing student loan debt relief laws, resulting in billions in forgiveness for students who are disabled or have been cheated by their schools.
The government has also issued a temporary waiver to ease loan forgiveness under a program for those who work in the public sector, which has resulted in $6.8 billion in debt relief for 113,000 borrowers, according to the Department of Education .
But with midterm elections approaching in November, debt relief advocates say incremental changes are not enough.
“People are looking for (Biden) to deliver on the promises he made on the campaign trail,” said Kristin McGuire, executive director of Young Invincibles, a group that advocates for the interests of young voters.
Recent polls suggest there is support among Democrats and independents for at least one form of lending, especially when it’s targeted at those who need it most.
A December 2021 Morning Consult poll found that 62% of registered voters polled favored some form of debt relief, either for all borrowers or for those on low incomes. Among them were 85% registered Democrats, 57% independents and 43% Republicans. Nearly 80% of Millennials supported debt relief and 34% supported debt relief, the highest support of any age group.
The question now is, after two years of life without a student loan, will borrowers be content with going back to the status quo?
“I think I’m just a pretty average millennial, and there are a lot of us,” Camacho said. “We have student loans, it would be great if they were forgiven, and we could do a lot of things in our lives if that were the case.”