Fewer than half of student loan borrowers are finding it difficult to afford homes and groceries, even as they manage a staggering $1.6 trillion in debt.
Currently, only 38% of the 42.7 million borrowers in the U.S. are up to date on their repayments. This situation has persisted since the Covid-19 pandemic, despite five years of supportive measures from the U.S. government and the Department of Education.
Most of these borrowers carry loans totaling less than $40,000. Yet, it’s important to note that about 3.6 million Americans owe over $100,000 each, which adds up to $656.7 billion—around 41% of the total student debt burden.
As of May, approximately 30% of borrowers with payments due—or about 5.6 million people—were at least 90 days late, based on data from Transunion.
Once borrowers hit the 270-day threshold, the government has the authority to withhold tax refunds and garnish wages up to 15% of after-tax salary.
Yet, these statistics can feel a bit abstract and might not motivate individuals to act, as noted by Sarah Newcomb, a senior behavioral scientist at Edward Jones.
According to the New York Federal Reserve, around 2.2 million borrowers experienced a credit score drop of at least 100 points in the first quarter of the year.
Take Kameron Davis, a 24-year-old Uber driver from Miami. He recently saw his credit score plummet by about 180 points due to unpaid student loans. Interestingly, he isn’t that worried, since buying a house isn’t on his radar for the foreseeable future.
After dropping out when classes shifted online during the pandemic, he focuses more on providing for his wife and two children rather than on making student loan payments.
“If rent and loans are my choices, rent wins,” he mentioned.
He and his wife have student loans totaling between $20,000 and $40,000, respectively. Since most Uber drivers are classified as independent contractors and his wife is a stay-at-home mom, their income isn’t something they’re concerned about right now.
Then there’s Stephen Jakubowski, a 32-year-old who hasn’t managed to secure stable employment. He struggles to afford rent and groceries but claims repaying loans isn’t a priority.
“I really don’t care; it’s just not on my radar,” he shared. Jakubowski owes about $10,000 from his two years at San Diego Christian College over ten years ago. He dropped out halfway through to become a firefighter and now feels detached from his debt.
Meanwhile, the Department of Education is adamant about pursuing delinquent borrowers. Educational Secretary Linda McMahon stated just last April that U.S. taxpayers won’t be used as collateral for what she calls irresponsible lending practices.
She criticized the Biden administration, arguing that they misjudged the borrowing situation and that the government lacks the constitutional authority to cancel debts.
Borrowers who defaulted before the pandemic will be the first to face wage garnishment, but freelancers and gig workers won’t necessarily encounter the same consequences.
If they lack an employer, they can’t have wages collected, according to Alpha Taylor, a staff attorney at the National Center for Consumer Law.
Tyler Scruggs, aged 30, dropped out of college during the pandemic and has $20,000 in debt. As a freelancer in the film industry, he hasn’t checked his credit score and has no intention of repaying his loans.
“We simply have a financial obligation. It’s a form of protest,” he stated. “I think we should just cancel all student debt.”
