What Is Student Debt?
The term student debt refers to money owed on a loan taken out to pay for educational expenses. Individuals can borrow student debt through the government or private sources, such as banks and other lenders. Rapidly rising college tuition costs make student debt the only option for many students and their families to pay for college for many students. Repayment of student debt depends on the lender—some require repayment immediately while others allow borrowers to begin repaying after they graduate.
- Student debt is any money borrowed by individuals to cover the cost of education.
- The price of higher education has skyrocketed in recent years, and it has become increasingly difficult to pay for without incurring debt.
- Many students incur debt before they truly understand the ramifications of paying it back.
- Debt can cover more than just tuition. It often pays for textbooks, miscellaneous fees, and room and board.
- Debt can be worth taking on if it means a higher earning potential or satisfaction in your career.
Understanding Student Debt
Student debt is typically incurred when a student uses loans to cover the cost of their education and other expenses. Students may use loans to pay for a wide variety of costs, including tuition amounts not covered through their own assets, grants, loans taken out by parents or guardians, or scholarships. By borrowing money to obtain a degree, it may be possible to earn significantly more or to pursue a more personally fulfilling career, making the debt financially or emotionally worthwhile.
While it is possible for students to save money to put toward the cost of higher education, the escalating price of that education at many institutions increasingly narrows the plausibility of covering such costs without some form of financial assistance. Especially for advanced degrees, student debt can escalate rapidly with the compounded price of curriculum, textbooks, and other associated costs ever on the rise.
Many students find it difficult to pay back their student debt. While there is an expectation that students will pursue careers and jobs that will offer them the means to repay student debt over time, there are no guarantees that they will immediately find this kind of employment after they graduate. Another downside of student debt is that most people incur it at a young age, before they may fully understand the implications of their decision. In addition, student debt differs from other types of debt in that it typically cannot be discharged in bankruptcy except in cases of undue hardship.
These issues often lead to student debt becoming a major source of stress for young people in the USA. According to The 2022 Investopedia Financial Literacy Survey, 74% of millennials are seriously stressed about their financial circumstances. Borrowing and managing debt was the second-largest concern of surveyed millennials. Understandably, millennials are also especially eager to learn about how to reduce debt.
Student loan forgiveness programs only apply to certain types of debt, mainly federally held loans. Loans made by private lenders are not eligible for government-sponsored forgiveness.
Most federal student loan debt in the United States was serviced by Sallie Mae. This was a publicly traded company until its loan portfolio and loan services were spun off in 2014 to a new entity, Navient.
In 2021, the U.S. Department of Education announced the transfer of this contract from Navient to Aidvantage, a division of Maximus Federal Services. However, Navient continues to service federal student loans made under the Federal Family Education Loan (FFEL) Program that are owned by private lenders as well as nonfederal private student loans.
Student Debt Forgiveness
There are several instances in which student loans may be written off. Graduates who meet the following criteria may be eligible to have some or all of their student debt forgiven:
- Have direct federal student loans
- Work in public service professions for a certain amount of time
- Make a minimum number of debt payments
Graduates with federal student loan debt who qualify for special repayment plans, such as income-based repayment, may also have the balance of their student debt forgiven after making payments for 20 to 25 years, depending on the program.
The Navient Multi-State Settlement
Some student loan companies have been forced to forgive student loans that were mis-sold. Navient, one of the largest student loan servicers, reached a settlement with 39 states in which it will cancel $1.7 billion in private student loan debt. The settlement marks an end to six separate lawsuits filed against the student loan company, which was accused of giving out loans to millions of borrowers who were unlikely to be able to repay them, and of improperly recommending federal loan forbearance instead of better relief options.
According to the settlement, not all of Navient’s current and past private and federal loan borrowers are eligible for relief. Only certain loans issued by Navient or Sallie Mae qualify:
- Borrowers must have attended certain for-profit schools, such as Corinthian schools, DeVry University, the Art Institutes, ITT Technical Institutes, and others.
- The student loans must have been disbursed from 2002 to 2014.
- The student loans must have been delinquent for at least seven months prior to June 30, 2021.
- The student loans must still be collectible under the borrowers’ state statute of limitations, and they must still be reporting to the credit bureaus, as of June 30, 2021, to be eligible.
- Borrowers must live in an eligible state.
In addition, to qualify for restitution based on Navient’s dealings with its federal student loan borrowers, you’ll need to meet these criteria:
- The borrower entered repayment on a Direct or FFEL program federal student loan before January 2015.
- The borrower had at least one federal student loan that was eligible for income-driven repayment from October 2009 to January 2017, but Navient’s customer service team steered them into forbearance instead.
- The borrower was not in an income-driven repayment plan prior to that forbearance.
- The forbearance lasted two consecutive years or more, and at least half of it was to postpone payments going forward instead of bringing a delinquent account current retroactively.
- The borrower resides in the District of Columbia or one of the following states: Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Virginia, Washington, or Wisconsin.
Eligible borrowers will be notified in the summer of 2022 if they qualify for relief or restitution under the settlement. You don’t have to do anything to claim it, but if you have questions, you can visit www.NavientAGSettlement.com or contact your state’s attorney general’s office.
Student Loan Debt and the COVID-19 Pandemic
The federal government made several provisions that were designed to help student loan borrowers deal with the as a result of the COVID-19 pandemic.
Forbearance, which began on March 13, 2020, when the Federal Student Aid (FSA) office, acting under an executive order from then-President Donald Trump, did the following:
- Suspended monthly loan payments
- Stopped collection on defaulted loans
- Reduced the interest rate to 0% on Direct, FFEL Program, Federal Perkins Loan Program, and Health Education Assistance Loan (HEAL) Program loans owned by the Department of Education
A week later, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which made these provisions law through Sept. 30, 2020.
In August 2022, the White House announced additional relief to certain federal student loan borrowers. Borrowers with Pell Grants through the Department of Education can get up to $20,000 in debt cancellation while those with non-Pell Grants may qualify for up to $10,000 in relief. But there are income thresholds: $125,000 or less for single borrowers and $250,000 for married couples.
Any relief mentioned in this article applies to federal student loans. If you have private student loans, check with your provider to see if they can offer you any repayment assistance.
Keep in mind that federal courts issued orders on Nov. 11, 2022, to block Biden's debt relief plans from going through. The Department of Education announced it was working to overturn the decision. As a result, it stopped accepting new applications and put those that were already submitted on hold.
The deadline for student loan forbearance was extended multiple times by both Trump and Biden. The move was meant to minimize the risk of future delinquency and defaults by providing borrowers with additional time before payments resume.
The end date was pushed back to Dec. 31, 2022, in response to the ongoing economic effects of the pandemic. This was supposed to be the final extension until the debt relief program was blocked. On Nov. 22, 2022, the Biden administration announced another extension to the student loan forbearance initiative. According to the announcement, the date would extend to the earlier of:
- 60 days after the forgiveness program goes into effect or the litigation is resolved; or
- 60 days after June 30, 2023
While preparing for a smooth transition back into repayment, the Department of Education continued assessing the financial impacts that student loan borrowers experienced due to the pandemic. When payments do resume, the impact of prior delinquencies and defaults will be eliminated for student loan borrowers with paused loans, allowing them to reenter repayment on an equitable basis.
Is All Student Debt Eligible for Forgiveness?
No. Only debt borrowed directly from the federal government is eligible for forgiveness. The Public Service Loan Forgiveness (PSLF) program offers forgiveness for those who work for federal, state, local, or tribal governments or not-for-profit organizations. After making 120 qualifying payments in an income-driven repayment program while working full time in a qualifying position, the remainder of the debt will be forgiven. As part of the COVID-19 forbearance, payments that were made outside the established PSLF programs may count toward the 120 payments, including payments made before a loan was consolidated, payments on Direct, Federal Family Education Loan (FFEL), or Perkins loans, or late payments, among other addendums. Explore the full extent of the waiver at StudentAid.gov.
What Is the Student Loan Pause?
The federal government issued a forbearance on student loan repayment, interest, and collections in response to the COVID-19 pandemic. Forbearance was supposed to end on Dec. 31, 2022, until federal courts blocked the Biden administration's student loan debt relief program. The White House announced it would extend the pause on federal student loan payments until either 60 days after debt relief goes into effect or once the court block is lifted, or 60 days after June 30, 2022—whichever comes first.
Can Student Debt be Dissolved Through Bankruptcy?
In all but the rarest situations, no. Student debt stays with the student until the loans are repaid or forgiven, even in the case of bankruptcy.
What Happens to My Student Debt if I Don't Graduate?
All student loans must be repaid, regardless of graduation status. For most federal student loans, repayment starts six months after the student leaves college or drops below half-time enrollment.
The Bottom Line
Student debt is often inevitable in today’s era of high-priced higher education. There are many funding sources for student debt, including state loans, private loans, and federal loans, but only federal loans qualify for income-based repayment plans or forgiveness. Incoming students will be at a greater advantage by lowering their debt through work-study, working outside of school, or choosing a more affordable school, as paying down debt can take decades, derailing other financial goals.