End of student loan repayment hiatus

Although a college education is seen as the bridge to a better life, financial security is a long way off for millions of graduates who begin their careers with heavy student debt. Fortunately, a nearly two-year pause on federal student loan repayments has allowed many borrowers to reduce their other debts in the meantime. But the time it will take to eliminate the combined $1.6 trillion in student debt is weighing heavily on the country’s 44 million borrowers.

A new study from the Center for Responsible Lending (CRL) finds that the disproportionate level of debt incurred by students at historically black colleges and universities (HBCUs) is delaying the pursuit of wealth-building options, despite federal programs specifically designed to guarantee that student loan repayment will not be akin to a 30-year mortgage.

“HBCU students receive less institutional aid and are more likely to take out loans than their peers at non-HBCU institutions,” said Christelle Bamona, CRL researcher and co-author of a recent report. “While President Biden’s recent landmark student loan relief plan will benefit millions of federal borrowers, including HBCU borrowers, policymakers must now work to reverse the systemic underfunding of HBCUs. and to increase the purchasing power of the Pell Grant, among other reform measures.”

To grasp this difficult financial dilemma, CRL used a combination of data analysis and focus groups featuring HBCU borrowers who together describe how HBCU participants and alumni nationwide collectively owe debt. student record of $40 billion, with an average debt at graduation of $32,373 – 19% more than their peers at non-HBCU institutions. This research was completed prior to President Biden’s announcement of the loan forgiveness.

According to the new report, “Paying from the Grave”, of the approximately 280,000 HBCU students enrolled at more than 100 institutions, 70% are eligible for Pell grants. Although the maximum Pell Grant of $6,500 has remained the same since 1980, the percentage of its actual financial aid is decreasing year on year due to decades of rising college costs.

For example, in the 2019-2020 academic year, the average Pell Fellowship was just $4,491, while the average tuition, fees, room, and board at a four-year institution the same year were $29,436. Due to a lack of family wealth, 60% of HBCU families have no way to contribute to a student’s college expenses.

As a result, the financial pressure to begin loan repayment after graduation leads 60% of HBCU graduates to accept jobs outside of their fields of study or to accept less desirable positions. Another 37% of these students have put off continuing their education or buying a home.

Gabriella, a focus group participant, shared the difficult choices she faced after graduation. Despite a dozen years of loan repayment, she still owes $100,000. As a nonprofit executive, she enrolled in the Federal Public Service Loan Forgiveness Program (PSLF) which provides public service employees with loan forgiveness after making 120 qualifying payments. She said she felt trapped because if she took a job in the private sector, she might forgo future loan forgiveness.

“I feel like even though I’m passionate about the work I do at a nonprofit, I almost feel like I have to work at a nonprofit to make sure my student loans will be repaid,” Gabriella said. “So my career choices are limited. And even when I’m looking for other jobs, I always try to make sure [that] they qualify for the PSLF… So I kind of feel trapped in making specific types of work decisions because of the PSLF.

Receiving PSLF loan forgiveness has been a daunting endeavor for all students. According to the CRL report, between November 2020 and July 2022, the Ministry of Education approved only 2% of PSLF pardon applications. HBCU alumni argue, and enforcement action shows, that student loan servicing errors contribute significantly to program failures.

The encouraging news from the report is that the extended payment pause has provided HBCU graduates with much-needed relief and the opportunity to reduce their debts.

“Our research also showed that payment pause played an important role in borrowers’ finances and mental health,” said Lucia Constantine, CRL researcher and co-author of the report. “Payment Pause enabled 85% of HBCU students to make at least one positive and wealth-promoting financial choice, such as starting or building up emergency savings and paying off other debts. Borrowers also reported being in a better position to achieve long-term goals such as home ownership, further education or starting a business.

The CRL report offers several recommendations to ease the burden of student debt, including holding predatory student loan managers accountable and doubling down on the Pell Grant program. Additionally, CRL calls for greater and sustained investment in HBCUs to increase grants and scholarships that would reduce the need for high-cost borrowing.

As the report states, “Getting into debt early on impacts lifetime earnings and generational wealth by delaying or preventing the ability to buy a home, start a business or invest in retirement, widening the racial wealth gap”.

Charlene Crowell is a senior researcher at the Center for Responsible Lending.

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