How Covid-19 has made the student loan crisis even worse

Sam Seagraves

Source: Sam Seagraves

Almost all of the money Sam Seagraves used to make as an actor in Portland, Oregon, went toward her monthly student loan bill of $1,083. 

Then the coronavirus pandemic hit.

With many production companies postponing or cancelling operations, Seagraves hasn’t been hired for a role since March. The CARES Act granted people with federal student loans a break from their payments until the end of September, but Seagraves has had to dig into her small savings to continue paying her monthly private student loan bill of $700.  

“I have enough saved to pay the private student loans through August; I’m not entirely sure how I’m going to pay them after that,” Seagraves, 30, said. She owes around $75,000 nearly a decade after graduating from the University of Miami with a degree in acting. 

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“I already assumed I was going to be paying my student loans forever,” she said. “But this is just a nightmare.”

There was a student loan crisis before the coronavirus pandemic paralyzed the economy and threw tens of millions of Americans out of their jobs. The country’s outstanding student loan balance is projected to swell to $2 trillion by 2022, and nearly 1 in 4 borrowers are behind on their payments. The loans have made it difficult for many Americans to buy houses and cars, start businesses and families, and save for their future

Now, that will all get worse.  

Some 10 million student loan borrowers could be out of work amid the recession, according to calculations by higher education expert Mark Kantrowitz

“If you have less income, your ability to repay student loans will be affected,” Kantrowitz said. “The highest priorities for student loan borrowers is to pay for food, medical care, housing and utilities, not repaying their student loans.”

The impact of the previous financial crisis on student loan borrowers was ugly. Between 2006 and 2011, the share of borrowers defaulting within three years of leaving college ballooned to 15%, from 9%. 

Seth Frotman, executive director of the Student Borrower Protection Center, said the crisis will be exacerbated by the U.S. Department of Education’s failure to fully implement all the relief measures extended to borrowers in the stimulus package. 

“Congress stepped in to provide at least temporary help and protections, and it’s just not happening for too many borrowers because of incompetence at the Department of Education,” Frotman said. 

Pandemic politics

Sen. Ron Wyden, D-Ore., and Sen. Patty Murray, D-Wash., wrote the Treasury and Education Departments a letter this week expressing concern that some defaulted borrowers may still be getting their federal tax refunds seized. There have also been reports of some borrowers getting their wages garnished. The CARES Act banned these practices during the pandemic. 

“The customer service of the student loan industry has been terrible,” said Whitney Barkley-Denny, senior policy counsel at the Center for Responsible Lending. “The recession and aftermath of the COVID-19 pandemic will worsen the student loan debt crisis.” 

The Department of Education did not respond to a request for comment. 

Catherine Botero

Source: Catherine Botero

House Democrats, in their $3 trillion HEROES Act, called for extending the payment pause for student loan borrowers for another year, until Sept. 30, 2021.

It’s unclear if Republicans in the Senate will want to let student loan borrowers off the hook for another year, Kantrowitz said. “But, given that 2020 college graduates are graduating into the worst job market ever, I think an extension is likely,” he said. 

In a few months, Catherine Botero will complete her master’s degree in occupational therapy at New York University. She owes more than $130,000 in student loans. 

“I’m worried it will be difficult to pay it with this economic crisis,” Botero, 23, said. She expects her monthly payment to be over $1,000, and doesn’t know if she’ll have a job with which to pay it. 

“I’m trying to stay positive, but it’s overwhelming,” she said. “All of us definitely feel pressure and fear.”

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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