BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Student Debt Might Soon Soar, But Don’t Panic. At Least, Not Yet

This article is more than 3 years old.

Conversations about student debt often center on the cumulative debt held by borrowers, what many call the “student debt crisis.” At $1.6 trillion, it’s not hard to imagine why that number feels overwhelming to many. We might see student debt increase at a higher rate than normal in coming months. But don’t panic, it may not be as bad as it sounds.

Cumulative student debt is bound to increase at a higher than average rate in the coming months because of legislation recently enacted by Congress. If and when it rises, we shouldn’t be alarmed.

The CARES Act was passed to address the fallout from the coronavirus and suspended student debt payments for about 6 months for most federal loan borrowers. Other actions have assisted private student borrowers, as well as some other federal student loans that weren’t addressed in the CARES Act.

So while some borrowers are still likely making payments, many fewer are and are therefore not paying down their loans. Add that to the fact that students will borrow to attend higher education this summer and fall, there’s no doubt that students’ cumulative debt balance will increase. (Some predict that enrollment in higher education will be lower this fall because of the virus, so it may not increase as much.)

Even though balances may not go down, Congress’s actions will have prevented thousands—if not millions—student loan borrowers from missing payments, getting hit with late fees, and accruing more interest on their loans. So, while borrowers aren’t necessarily making progress on their loans, they aren’t digging themselves deeper into debt or having negative credit impacts.

Borrowers have been shielded from further financial stress during this pandemic from Congress’s actions. They could’ve been accruing interest and have gotten little relief.

However, there are some reasons to be concerned. While borrowers will not face interest for their non-payment during this time, costs could rise for student borrowers in the fall and coming year. The economy is in a fragile state and many predict is will get much worse. If the economy falls into a recession—or worse, a depression—higher education could get much more expensive.

Recessions put a strain on state budgets, forcing them to make cuts. And often, higher education is the first victim because, unlike expenses like Medicaid and prisons, colleges and universities can shift those costs to students and families in tuition and fees. And the federal government ensures families have access to loans to attend. In the Great Recession, we saw this play out and students and families paid the price, literally.

Many states still haven’t reinvested in higher education making it already too expensive for many borrowers. Now, the economic fallout of the coronavirus has already put a strain on state budgets and it’s likely to get much worse. If states are forced to cut more, that’ll mean higher costs, and therefore debt, for American students.

Worse, increased costs could mean that low- and middle-income students could be priced out of going to college in the first place. The value proposition of a college degree is one that pays off for most low-income students when they graduate. But if they’re priced out on the front-end it can leave them without the ability to find a well-paying job and often leave them in poverty.

With many people in fragile economic circumstances, it’s critical that need-based aid programs like the Pell Grant are sufficiently funded to ensure higher education access and affordability, especially for the most vulnerable. Those concerned about student debt would be wise to focus on ensuring college is affordable this fall and next year. Otherwise, too many students will never reap the many benefits of a college degree.

Follow me on Twitter or LinkedIn