U.S. student loan debt fell to $1.57 trillion in 3Q22 from $1.59 trillion in 2Q. That was the biggest drop in at least 20 years, according to the New York Federal Reserve’s Household Debt and Credit Report.
Jacob Chanel, senior economist at LendingTree, said that while the decline was smaller, it was still “very significant”. The Fed attributes this to student loan forgiveness policies enacted by the Biden administration, such as the Public Service Loan Forgiveness (PSLF) program, and debt forgiveness for students who attended fraudulent schools.
Chanel said: “The important thing is that the difference is equivalent to 20 billion US dollars. Although people still have a lot of student loan debt, I think the reduction in debt … is still good news.”
It also slightly eased concerns about a full-blown student loan crisis in the US. While student loan debt in the U.S. continues to grow every year, from $240 billion in 2003 to $1.57 trillion today, the federal government’s forgiveness policies appear to be having some effect.
President Joe Biden has made student loan forgiveness a top priority of his administration, especially for students who have been defrauded, disabled, or who qualify for existing forgiveness programs but cannot because of bureaucratic mismanagement. So far, the Biden administration says it has provided nearly $48 billion in relief for more than 1.8 million borrowers.
“These 1.8 million people will now have an easier time accumulating savings, paying other bills, or getting approved for a mortgage or other service,” Chanel said.
There are other factors besides debt relief that can also affect overall student loan debt. For example, a decline in U.S. college enrollment could reduce student loans because there are fewer borrowers.
Additionally, federal student loan interest rates have remained at 0% for nearly three years. This slowed the growth rate of existing loans and may have contributed to the change in total student loan debt.
The Fed noted that the loan forgiveness enacted by the Biden administration helped offset loan origination fees that are typically incurred at the start of the school year.
Extensive relief still awaiting approval
In addition to debt relief for defrauded lenders and improvements to the Public Service Loan Forgiveness Program, Biden is seeking to forgive up to $10,000 to $20,000 in loans for federal borrowers who meet certain requirements. The broad relief program will reduce hundreds of billions of dollars in debt. However, the plan has not yet been approved due to legal issues.
On Wednesday, a federal appeals court declined to suspend a Texas judge’s ruling that the program was invalid. The Biden administration has filed a separate lawsuit in the U.S. Supreme Court; the U.S. Supreme Court said on Thursday that it would take up the case.
The U.S. Department of Education cannot forgive any debts under the one-time program and has even stopped accepting applications for debt relief pending the U.S. Supreme Court decision. If the relief plan is passed, the White House said about 16 million borrowers who have submitted applications and been approved can receive relief, and many more people will benefit in the future. By some estimates, some $400 billion in debt would be forgiven if everyone was eligible to apply and be approved.
Biden announced last week that federal loan repayments and interest accrual would remain suspended while the lawsuit proceeds. (Fortune Chinese website)
Translator: Liu Jinlong
Reviewer: Wang Hao
Total student loan debt in the US fell to $1.57 trillion in the third quarter of 2022 from $1.59 trillion in the second quarter. That’s the largest decline in at least 20 years, according to data from the New York Federal Reserve’s Household Debt and Credit Report.
It’s a small drop, but it’s still “very significant,” says Jacob Channel, senior economist at LendingTree. The Fed credits it to student loan relief efforts enabled by the Biden administration, such as revamping the Public Service Loan Forgiveness (PSLF) program and discharging the debt of many attendees of fraudulent schools.
“It’s important to remember that that difference is equal to $20 billion,” says Channel. “While there’s clearly still a ton of student loan debt left for people to pay down, I think the decline…is still good news.”
It’s also a slight relief to America’s overall student loan crisis. While balances continue to grow higher and higher each year—from $240 billion in 2003 to $1.57 trillion today—the federal relief programs seem to be having some effect.
President Joe Biden has made student loan relief a priority throughout his time in office, particularly for those who were defrauded, are disabled, or who should qualify through an existing forgiveness program but have been unable to due to bureaucratic mismanagement, the Cur it has forgiven nearly $48 billion for over 1.8 million borrowers.
“That’s 1.8 million people who will likely now have an easier time saving money, keeping up with other bills, or getting approved for things like mortgages,” says Channel.
There are other factors aside from debt forgiveness that are also likely impacting the total student loan debt. For one, a drop in college enrollment in the US could result in lower uptake of student loans simply due to the fact that there are fewer borrowers.
Additionally, federal student loan interest rates have been set at 0% for almost three years. That slows the growth on existing loans, which could account for some of the difference.
Still, the Fed notes that the loan discharges enacted by the Biden administration helped offset originations that typically occur at the start of the school year.
Widespread forgiveness is still on hold
In addition to discharging debt for defrauded borrowers and improving PSLF, Biden is trying to forgive up to $10,000 to $20,000 per federal borrower who meets certain requirements. But that widespread plan, which would cancel hundreds of billions of dollars in hold due, is on to legal challenges.
On Wednesday, a federal appeals court declined to pause a Texas judge’s ruling that the plan is unlawful. The Biden administration has already taken a separate suit to the US Supreme Court; SCOTUS said Thursday it will take up that case.
Until SCOTUS rules, the US Department of Education cannot forgive any debt under the one-time program, and even stopped taking applications for debt forgiveness. If the relief program were allowed to proceed, the White House says some 16 million borrowers whose applications have been processed and approved would see forgiveness, with more to follow. Some estimates say around $400 billion in debt could be forgiven if everyone who is eligible applies and is approved.
Biden announced last week that the pause on federal loan payments and interest accrual would be extended while the lawsuits play out.
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