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From the New York Times, I'm Michael Bobaro, this is The Daily.
Across the country, millions of Americans with unpaid student loans are discovering that years of patience and forgiveness from the US government have officially come to an end.
Today, Stacy Cowley on what's behind the change of heart, its financial consequences for borrowers, and the larger reckoning that it could finally trigger about how Americans pay for higher education.
It's Monday, April 21st. Well Stacey, it's nice to have you back.
Thanks for having me.
I think this is the third time that we have had a version of this conversation with you?
Fourth I think. Oh excuse me.
There were a lot of developments along the way.
Well that's right I mean we keep coming to you to talk about this subject because you're authority on it.
And because it keeps changing.
And at this point it's genuinely confusing and it's extremely important to tens of millions of people.
So I'm preemptively grateful.
Well, thank you for your interest. So where exactly are we right now in this long winding saga of America's student loans?
So we're at a real turning point on this.
After this nearly five -year period when most people weren't making payments and weren't required to do so and weren't having any negative consequences if they didn't, the government really dropped the hammer in the last few months.
They've said we are done with timeouts, we're done with pauses, you need to start paying again.
That's a very big change.
Mm -hmm. And they instructed their loan servicers to start reporting delinquencies to the credit bureaus again, which hasn't happened for five years now.
So that immediately resulted in four million people found delinquencies reported on their credit reports.
And these are serious delinquencies.
People saw their credit scores plunge that can have immediate impacts on your ability to rent an apartment, to get a mortgage, to get a loan for a car.
So this can be pretty catastrophic when this happens to you.
And we've had 4 million people who are now in that delinquency.
The estimates are that we're going to have as many as 9 million by the end of this year.
And that many of those people could end up in default.
That's what happens when you don't pay for at least nine months.
And that sets off a whole nother series of very bad financial consequences.
And if we do end up with 9 million people defaulting, that would be a record number.
And it would also mean we have 9 million Americans who are basically in the worst kind of financial bind you can be in.
Yes. And even beyond that, the repayment really hasn't gone as planned.
Right now of the roughly 38 million borrowers who have payments too and are supposed to be making payments.
Yeah, it's a big number.
So of those 38 million, right now, only about a third are making payments.
I think it's important to have you remind us briefly how we got here, because a lot of factors went into how we arrived in this moment.
Yeah. So this federal student loan payment system has always been kind of rocky.
It has never really worked particularly smoothly for the last decade and a half.
But what happened when the pandemic started back in March 2020 was, the government immediately called an emergency timeout.
In response to the economic conditions at the time, they said, all right, we're gonna take this burden away from people.
You don't have to make these payments.
Right, huge deal, and kind of understandable because it was the federal government that shut our economy down.
And so the thinking was, we're gonna not force a lot of people who are out of work or making a lot less than usual to have this burden on top of that.
Exactly, there were record unemployment numbers And one thing about this is not only was the government the one that shut things down, they are also the creditor for all of these student loans.
It's a very unusual market in that they don't have to go to banks.
They don't have to go to private lenders.
Right. They were providing the loans.
Exactly. So it was very easy for them to say, okay, we're just going to turn it off.
And that was always intended to be a temporary measure, but it kept getting extended.
First by President Trump.
So Trump extended it several times.
Then President Biden took office and he extended it several times.
And it just kept going and going and going.
And so for how long were, I think, tens of millions, right, of folks who had lots of student loan debt permitted to not make repayments?
So, it officially stretched for about four years until September 2023, but then President Biden added an additional thing to this.
He said, for the next year, all right, you're supposed to be making payments, we're going to try to collect, but we're not going to report you to the credit bureaus if you don't.
I'm going to guess a lot of people took advantage of that.
there wasn't a lot of negative consequences if you just didn't start paying, so a lot of people didn't.
And adding to that was the confusion around what was going to happen to this debt.
I mean, President Biden was pursuing the plan of mass debt cancellation up to 20 ,000 per borrower, the Supreme Court then overturned that and all of these people who thought their debts might go away entirely, got that disappointment.
And then President Biden moved on to his plan B, which was introducing a new repayment plan called SAVE that was much more generous than any past payment plan.
How much more generous?
Well, it was an income driven payment plan, meaning that your payments would be directly tied to how much you were making.
It was deliberately an attempt to keep things affordable.
And on past payment plans, that's typically been limited to about 10 percent of your discretionary income.
President Biden's plan cut that in half for people with only undergraduate loans.
So suddenly people whose payments were 10 percent of their income were cut down to 5 percent.
That's a huge change.
Right. There's Trump and his allies on the campaign trail...
and I watched this closely...
were making the argument, wait a minute, why is student debt being treated with all this forgiveness?
Nothing like that happens to auto debt or mortgage debt.
So why college debt?
And to Trump, out of office at this point, it felt like a Democratic president handing out gifts to Democratic kind of people.
There's a real political divide around here, and the reality of the demographics don't always bear it out.
A lot of the people who do have debt, it is a lot of people who are working class and a lot of people have amounts from things like trade schools and professional schools that they haven't been able to pay off.
So plenty of people in the Trump coalition have student debt.
Exactly. But it was definitely clear that Trump had a very different vision for this than President Biden did, and that if he were to come back to office, that a lot of what Biden had built was going to go away.
Okay, so let's fast forward to the part where Trump does come back to office.
What exactly does he do?
What does he change?
What does he take away and what remains?
So, even before Trump comes back to power, the plan that Biden introduced, the SAVE plan, got caught up in court.
A group of Republican led states challenged it, said they succeeded the president's authority, and that has been prevailing in court, which left about 8 million borrowers who had signed up for this plan kind of in limbo, waiting to see what was going to happen with these court cases.
So once Trump returns to office, it becomes clear that the plan is doomed.
Save is doomed? Exactly.
Either the courts are gonna kill it or the President and his administration are gonna kill it, but it's going to go away.
Which is pretty whipsawish.
Yeah, and those eight million borrowers are all still just on pause right now.
But for all these other tens of millions of borrowers, the message is you need to be paying.
Biden had set it up so that payments were going to resume right after the election, kind of matter what happened.
That meant that Trump gets elected.
He's coming into office just as this years of not really having to pay, ends.
And as the government gets serious about collecting on these debts.
However, people have been warning for years that getting people to start paying again after years of not paying, was going to be really tricky.
It was going to require a lot of resources and a lot of attention.
And that is not what is happening.
The student loan servicers who are supposed to be collecting these debts are pretty hammered and overwhelmed and they have been struggling to get guidance from the education department because Trump is trying to shut it down.
Exactly. And one of the things borrowers are now confronting is not only do you have to start paying this bill again, but you also have to navigate what's the best way to pay it.
And that's been one of the areas where borrowers have been running into challenges.
They have been trying to get themselves back into repayments, and there is currently an enormous backlog at the education department.
A lot of people have already left, either by being fired or retiring or just deciding to opt out.
So that agency is currently very hollowed out.
One of the offices that has really been decimated over there is an office that handles student loan borrower complaints.
One of the people who was fired last month from that office said in court filings that she left behind a backlog of 16 ,000 complaints.
Oh my gosh. That are piled up and unaddressed.
The education department also has more than a million borrowers who have applied for income -driven payment and are stuck in limbo.
They're waiting for their applications to be processed.
There's a huge backlog, often stretching for months.
So those people are also kind of stuck right now.
This is where the Doge job cut rubber meets the road.
Yes. At exactly the moment when you would ideally want to be staffing up and putting more resources into the system to help people navigate this return to repayment, we've instead done the opposite.
I'm going to assume that you have spoken to some borrowers who, when they've been told now they have to start repaying, are trying to do that.
And I wonder what the math looks like in their financial life all of a sudden?
It's a real struggle for a lot of people.
Thank you so much for taking the time to talk with me about this.
Oh, no problem. Yeah, it's been quite, um, yeah.
I spoke to a healthcare worker down in Florida, who's been trying to get enrolled in the income -driven repayment.
I do work two jobs because I'm kind of trying to prepare for that student loan payment.
But again… She did the math on the government's own calculator and worked out that her payments would be about $490 a month.
She said that would be a stretch, but she could make that work.
then I'd get a bill in January that was for like nine hundred and twenty -four dollars.
However, when she got her first bill, she found that something had gone awry and she was getting a bill for the standard payment amount.
And I'm like, this isn't right, because this is not what it should be, like it should be much slower.
Which is not a bill she can deal with.
I make a decent income, but still it's never enough to keep up with that.
So she's been calling her servicer and spending hours and hours on hold, multiple days for the last few weeks, trying to get this fixed.
Yeah, their systems are all messed up.
Do you know what's actually going on behind the scenes?
It's almost like you're guessing what...
And it just keeps going awry at every turn.
She got a revised bill, this one was for $1 ,000.
She really has not been able to figure out what the problem here is.
...obviously. And of course the interest rate is ridiculous.
just suffocating. And that's a really frequent story.
I've talked to dozens of people trying to sort this out.
It's an albatross around my neck.
I want it off. I literally lose sleep over this.
I have nightmares about this.
My payments are so insanely high.
People got really used to not having that payment.
And now with this payment crashing back into their lives, people are trying to make it happen.
They know it's a debt they borrowed and want that they have to repay, and they're running into challenges.
So I called the Department of Education and waited on hold for hours.
Nobody has any answers.
Nobody has any solutions.
Trying to figure out how they can reintegrate this payment into their lives.
And I'm going, wait a second, I can't make those payments.
That's a lot of money, and then I'll never be able to retire.
That's why a big, scary shadow chases me in my dreams, literally.
How should we think about the bind that a lot of these folks are in?
I mean, perhaps this is an imperfect analogy you'll let me know but this feels a bit like the moment when a lot of folks in the mid -2000s who had those adjustable rate mortgages like had them reset and all of a sudden they owed a lot more.
On some level, they knew that moment would come, and yet when it comes, there's still a lot of financial sting.
Even as I'm asking the question, I'm recognizing why it's imperfect because in the case of student loans, the situation kept changing.
The rules kept changing.
The expectations kept changing.
So maybe there's a flaw to that question.
Now, how should we think about this?
They're very strange loans.
There is no other consumer loan that you take out where you don't know when you take it exactly what the payment terms and options are going to be.
That is really weird. And that has really whiplashed people.
I mean, most of the biro -ways I talk to start the conversation and end the conversation by saying, I want to pay what I owe.
I took the loan. I knew what it was going to come due.
I knew I'm going to have to pay it.
But they are really frustrated by both having this hope put in front of them for a more affordable option and then having it snatched away.
And they're also just really frustrated by the logistics right now of trying to figure out, what am I supposed to be doing here?
What has become very evident from this conversation and all the previous conversations we've had with you is that student loans as managed by the federal government have become this really variable, wildly unpredictable thing that changes from one president to the next.
And that starts to make me wonder, and I'm guessing I'm not the only one, whether the federal government with all the political whims of our system is the right institution to be overseeing one trillion dollars in student loans.
That's a question that gets asked frequently, and certainly the situation right now is bringing it to light again.
And there are people in and around Trump, people in Trump's orbit who are asking that question, and who are raising the issue of is it time for the government's the role in this to change, should the government really play a profoundly different kind of role in this system than it does now?
We'll be right back.
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So Stacey, if, as you just said, there's some real questions about whether the government should play this role in student loans.
I think it naturally makes sense to understand how and why the federal government got into this business in the first place.
What's that story? So for that, we go back to the mid -60s.
Up until then, college education and certainly financing for it was something that was pretty limited.
I mean, you really could only get that if you were, you know, a high -performing student studying, you know, hard sciences and things like that.
In 1965, Congress and the president passed the Higher Education Act.
And that was a landmark bill that transformed the higher education system.
And it was the first time that said we're going to have a government -sponsored program where pretty much anyone can come get a loan and borrow to go to college.
So private banks actually made the loans, but these are really risky loans.
A lot of them aren't gonna get paid back, so the role the government played was it said to the private lenders, okay if this loan goes bad, if it's sour as in the borrower doesn't pay, we will step in and pay you.
Because there's a public interest in sending more and more Americans to college?
Yes, this was very much perceived as something that was good for the United States.
Part of it came out of a direct counter to the Soviet Union, the concern that we would fall behind, that there would be an education gap.
So the idea was that this was something that was in the taxpayer's interest to make sure that more people could pursue higher education.
So, how did that go, the government being the backstop?
Rocky. The program went through a lot of changes over the years.
The banks were making money doing this and the government was taking on the administrative burden of running the programs and of backstopping them.
So they would take on the losses when the loans soured.
And there was certainly criticism that came up from time to time about, hey, why are we letting the banks make all the profit here, while we're subsidizing all of the risk?
right. A reasonable question.
So fast -forwarding a little bit, how do we arrive at a moment where the federal government decides maybe we will take on both the risk and the reward?
So, the moment when everything changed was in 2010.
As part of the Affordable Care Act, weirdly enough, so President Obama wanted to pass the Affordable Care Act, this very massive and expensive change in the healthcare system, and the government went looking for what it calls pay -fors.
It went looking for ways to - Revenue generators.
Exactly, things that they could put into the budget and say, look, we're now making money so this is going to balance out.
And this was the area they zeroed in on.
Student loans. Mmm -hmm.
Even though they don't make any money from it?
Well, that was the calculation.
The Congressional Budget Office and other financial analysts came back and said, if you take this in house, if you start making these loans directly and keeping the profits from them, that's going to generate tens of billions of dollars over the next decade for the government.
And for the first few years, that is how it starts to play out.
And then that starts to change for kind of two reasons.
The first is that the amount of money people owe starts to really surge and that both makes it significantly harder for them to pay it off.
You start to see more defaults and more people struggling with this debt and it also starts incentivizing the government to look at ways to make it more affordable.
So you start to see them introduce more loan forgiveness programs, more repayment options that are more generous and more flexible, things where it means that the government starts to be subsidizing this program more heavily.
less money. Exactly.
The math on this starts to change.
And this moves from being an income center to the government to an area of projected losses.
Was there a conversation in this period about whether the government's approach to this is making college more expensive?
Because that seems like a clear link.
If the government as the provider of these loans, and it's going to forgive lots of the loans as they get bigger and bigger, what incentive do colleges and universities have to put a cap on the price of going to college?
That's been a running conversation for at least 20 plus years, even before the government pulled this all in -house.
There were concerns from economists and policy analysts that this was driving the cost of tuition going up.
Again, there are no other loans that really work like this.
If you're borrowing for your undergraduate degree, you can borrow tens of thousands of dollars.
And if you're borrowing for a graduate degree, you can borrow basically an unlimited amount of money.
There's no test of, are you likely to be able to make enough to pay this?
So that's how you get to a place where when you basically hand students and really hand the schools a blank check, suddenly the price goes up a lot.
Well, for the sake of argument, what would it look like for the federal government to get out of the student loan business and to return to the pre -Obama era, where it's really the private sector in charge of this.
And would that likely create a more predictable, less confusing, whip -sawing system and, just to make this question even more complicated, might that lower the cost of tuition?
I think the answer to all of that is it's unclear.
There's a lot of different options for how you could change the system if you were going to.
You could simply go back to the pre -2010 system and just say this is the banks and we're just here to backstop it.
So that's one possibility.
As for tuition, I think people think the biggest issue there would be capping the amount that people can borrow.
Banks potentially might say this is the limit you can take, which currently doesn't exist. Banks or the government or someone coming in and putting a limit in place because that would force the schools to respond to that.
Right now, a lot of what's driven tuition is that they can do it, and nobody is sort of forcing the price constraint here.
Is it fair to ask whether what Trump is doing here, by forcing the system to go back to its original state five years ago, is that he is forcing us to reckon with all the things we're talking about here and to perhaps rethink the government's role.
And is that a healthy exercise because of the confusion, because of the tuition costs that are unconstrained by the current system?
I mean, how many times in this conversation have you basically said the system is broken?
Biden was trying to fix it through ad hoc amnesty and forbearance, is what Trump is trying to do here a very different version of fixing it through a kind of brute force, tough medicine?
Certainly the fact that we are on track right now for huge numbers of delinquencies, huge numbers of defaults, that creates the conditions in which you would hope people would take a close look at the system and say what can be done better, how can we fix this.
That said, part of why we've had this conversation so many times is that's kind of been the shape of the system for much of the last decade across multiple presidential administrations, Democratic and Republican, this has been, for a very long time, a really broken system.
And unless Trump does try to take it out of the government's hands or do something pretty radical, he will simply extend the brokenness without any upside.
Yes. And that's what we just don't know.
I mean, really, there's a lot of options here, but the administration has not laid out any clear policy plans whatsoever here.
So no one's clear on is this a moment when we're actually going to make critical changes or are we just going to do what we've been doing for a long time now of limping along with this broken system and leaving borrowers to kind of fend for themselves in dealing with it?
And if that is the case, if the system limps and borrowers are left to pay these huge bills, I want to go back to something you said in the beginning about delinquency and default.
What does the world look like in six to nine months, a year, a year and a half, if we start to see those millions of defaults?
It's obviously really catastrophic for individual people and their households.
The effects of delinquencies and defaults really stick with you.
For delinquencies it's going to mess up your credit score, it's going to make it really hard for you to get loans and financing.
It's going to make it much more expensive for you to do that.
That often stops people from being able to afford the things they need for their daily lives, from housing to a car to things like that.
But it's also bad for the economy writ large.
If people are having to really constrain their household spending, you're not going out to dinner, you're not going out with your friends, which is a wet blanket over the entire economy.
Exactly. So that's one area of concern.
It also sort of does raise the broader question about the entire system, about is this worth it?
You do see people, teenagers, people in their early twenties, questioning the concept saying, Do I want to go to college?
Do I want take on tens of thousands or hundreds of thousands of debt that's going to chase me around for decades and decades and that does sort of take us back to right where we were in the 60s of deciding how much we as a society want to invest in this and how broadly available higher education really will be.
Well, Stacey, appreciate your time.
Thank you. As always, thanks.
We'll be right back.
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From New York Times Opinion, I'm Ross Douthit, and on my show, Interesting Times, I'm exploring this strange new world order with the thinkers and leaders giving its shape.
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Here's what else you need to know today.
On Sunday night, the Times reported that Defense Secretary Pete Hegseth shared detailed information about forthcoming airstrikes in Yemen in yet another signal messaging chat this time with a group that included his wife, brother, and personal lawyer.
The latest revelation raises even more questions about Hegseth's judgment and about Trump's decision to appoint Hegseth to oversee the US military.
Today's episode was produced by Rob Zepko, Stella Tang, and Rochelle Bongem.
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