When we think about student debt, it’s now the largest category, with the exception of mortgages. It’s surpassed credit debt, that is, credit card debt. So I think the thought is, look, the average debtor, with student debt, they’re paying roughly $400 a month, so roughly $4,800 a year. That money itself could go towards other things.
For example, maybe towards rent, maybe towards starting a new business, maybe towards a mortgage. Leading into COVID, we saw roughly 25 percent of borrowers were either late in payment or actually were delinquent in payment.
So there’s a lot riding on this. I think financial health is a big issue, as well as sort of we’re learning more studies about mental health related to the financial consequences of having this burden, which can average 20 to 25 years for many of these student borrowers.
Most: Can you talk briefly about how the current COVID-19 student loan pause may have affected borrowers and how it’s sort of impacting their behavior?
Williams: Right. The pause itself was first started in . And that pause has been actually hit five additional times. It’s been extended in six-month periods all the way out through May of this year. And what that’s done is given relief, in a sense that interest is not accruing on these loans, which is very positive.
So it’s a significant issue and it impacts FICO scores for students and their ability to get credit in the future
Payments aren’t being made, which actually gives more cash flow to these individuals. However, the concern is once the obligation is required to be paid again, will this cash flow be there?
Most: So, how big of a role and how big of an issue do you see this playing in the midterm elections? Is this sort of a secondary issue? Do you think Biden is going to try to make this into a front-and-center issue that he feels plays to the Democratic base, knowing that it might antagonize Republicans? How big of an issue do you see this being?
Williams: Well, if we think about the amount of debtors, so we have 45 million debtors; another way of thinking about it is 45 million voters. If he relieves, for example, $10,000 worth of the debt, that’s 15 million people he’ll make happy.
Most: It reminds me of that great scene in Ghostbusters when Bill Murray is trying to convince the payday loans in South Dakota mayor to solve the problem of the ghost. And he says:
Most: It’s a similar sort of situation for Biden perhaps, where all those voters will have their debt forgiven, and Democrats might see this as sort of a big win for them.
Williams: Well, it’s a real tangible thing. I mean, Biden has been trying to push several initiatives through and he’s really come up short, so this could be a win for him. The challenge, though, is that it’s not just an executive order. Many have argued that it’s got to be a congressional agreement for this to be done.
Or will we see an increase in the amount of defaults, which actually impact borrower credit ratings and could have other detrimental impacts on their financial health?
Most: Is the money there? You mentioned $1.7 trillion at the beginning of this. Do you think there would still be a win if he did just a fraction of it or a portion of it, or would it be sort of muted and therefore maybe not even worth the effort?