The US Supreme Court will hear arguments next month about whether President Biden has the authority to forgive up to $20,000 in student debt for millions of borrowers. Part of the Biden administration’s legal argument rests on the claim that borrowers as a group were made worse off financially by the pandemic. Our analysis indicates that most borrowers are currently in a similar or stronger financial position than they were in 2019, but it is unclear how much of that is because payments have been paused since March 2020. There are also warning signs that many borrowers will be in a weaker position once the payment pause ends.
Key findings
- Most borrowers said they were doing at least as well financially in 2021 as they were before the pandemic. Overall, 48 percent of student loan borrowers reported in fall 2021 that they were doing better financially than in 2019, before the pandemic, and 24 percent said they were worse off. Yet 34 percent of borrowers with only an associate’s degree or certificate, 32 percent of borrowers with incomes below $25,000 a year, and 31 percent of Hispanic borrowers reported they were worse off.
Notes: The survey question was “Compared to two years ago (2019), would you say that you (and your family) are better off, the same, or worse off financially?” with the options “much worse off, somewhat worse off, about the same, somewhat better off, much better off.”
- Credit records also show financial improvement. The share of student loan borrowers with subprime credit fell from 33 percent before the pandemic to 24 percent in August 2022.The share of student loan borrowers with other debt in collections also fell during that period, dropping from 31 percent to 25 percent.
- The role of the payment pause is unclear, as is what will happen when payments resume. The data we examine can help us examine borrowers’ circumstances, but they cannot tell us whether changes occurred because of or despite the pause. In other instances where loan payments have been paused because of emergencies, default rates dipped during the pause and then increased to slightly above preemergency levels once payments resumed. There are signs the same would happen now. Among borrowers with incomes below $40,000 who had payments due in 2019, 40 percent reported not making full payments that year, but 51 percent said they did not expect to make full payments once the pause ends.
Implications
The data suggest student loan borrowers as a whole did not experience acute financial distress during the pandemic, though there is evidence some borrowers did struggle and will continue to struggle once payments resume.
Regardless of how the Supreme Court decides this issue, there will be challenges with the return to repayment—whether it is all 45 million current borrowers if the Court strikes down the forgiveness plan or the 25 million who will still have student loan debt remaining if the Court lets forgiveness stand. It is critical that the Biden administration ensure that the restart of payments does not further harm vulnerable borrowers but does address the problems with student loan policy that pre-date the pandemic.
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Additional resources
Expectations of Student Loan Repayment, Forbearance, and Cancellation: Insights from Recent
Fixing the Federal Student Lending System
Some Borrowers Navigate toward Lower Monthly Payments during Student Loan Pause
Student Loan Repayment during the Pandemic Forbearance
The Student Loan Pause has Improved Credit Scores, But Not Financial Distress
