What happens when almost everyone with student loan debt stops paying, for years : Planet Money The pause on federal student loan payments was just extended for the sixth time in two years. So...what's that been like for the borrowers, and what's in store for them when the system eventually restarts? | Subscribe to our weekly newsletter here. | Planet Money TikTok has been nominated for a Webby award! Cast your vote for us here.

The student loan paaaaauuuuuse

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Celeste Kamiya is 25 years old and a stage manager at a nonprofit theater company. She works with teenagers to put on productions like "Ragtime" and "Shrek."

CELESTE KAMIYA: Oh, I love it so much. It's definitely something I wanted to do. I love teaching, and I love theater, so it was a perfect marriage of those two things.

ARONCZYK: But it doesn't pay the rent in Oakland, Calif., where she lives.

KAMIYA: I still have to have a supplementary income job. I nanny on the side, and sometimes I work retail on the side.

ARONCZYK: Both of her parents are also artists, so she didn't grow up with a lot of money. And when she went off to college, she had to take out some loans.

KAMIYA: So I graduated in the end of 2017, and I owed $25,000 in student debt, so not the worst, but also not nothing.

ARONCZYK: Do you know what your interest rate is?

KAMIYA: Oh. It's not terrible - you know, I have not checked back in on that thing since 2020 (laughter).

ARONCZYK: That is because back in March 2020, the pandemic shut down the economy. Everyone was losing their jobs. So as one of many emergency measures, the government froze student loan repayments for most borrowers. They didn't have to pay the loans. There was no interest piling up, which for Celeste was kind of magical.

KAMIYA: I couldn't afford to pay the student loan, and I didn't pay very much per month either. I only paid about, I think, $250 a month.

ARONCZYK: The 250 that you would have been paying towards your student loans - like, where is that going now?

KAMIYA: Well, it's embarrassing, but for the first couple years out of college, I was having to ask my father to help lend me rent money every month. So the pause genuinely helped with me being able to completely pay my own rent. It feels good, you know? So when the pause started, I was like, right on. I hope this goes on for a while.


ARONCZYK: And, well, lucky for Celeste, it has.


ARONCZYK: There have been six extensions on the pause. Now, Celeste won't have to pay that 250 a month until the pause ends on August 31 - unless, of course, the pause gets extended again.


ARONCZYK: Hello, and welcome to PLANET MONEY. I'm Amanda Aronczyk. Two years ago, something remarkable happened. Some call it the pause, maybe the blip - others, the moratorium. The Trump administration flipped a switch and shut down the student loan system. For most federal borrowers, collections stopped. Today on the show, what happens when almost everyone with student loan debts stops paying - for years? And when is the right time for them to start paying again?


ARONCZYK: A lot of different kinds of emergency aid kicked in at the start of the pandemic. And almost all of these programs have ended. The federal eviction moratorium, the Paycheck Protection Program, extra federal unemployment benefits - all gone. But the federal student loan pause just keeps on keeping on. And that is a big deal because 43 million Americans have student loan debt.

To understand what this pause has meant for people, we talked to a bunch of borrowers. We also called up some people who are thinking through the pause as policy - the problems with it, the financial implications, and the best way to wind it down. So the average student loan borrower owes $37,000. One of the borrowers I called - her name is Elizabeth - she owed a lot more than that when she finished school. We're not using Elizabeth's last name to keep details of her financial situation private.

ELIZABETH: I owed about $65,000. I know it's a huge amount of money to owe back.

ARONCZYK: She studied dance as an undergraduate, realized that she'd never pay back her loans that way, and went back to school to become a UX designer. And when the pause went into effect, she saw it as an opportunity because that amount of money she owed - 65,000 - it was really in her head. She was kind of obsessed with it. Even before the pandemic, she'd cut back her expenses as much as she could, and she was paying $1,500 a month towards her student loans.

ELIZABETH: I was paying my rent, which was, yeah, it was around, like, 1,600. So in my mind, I was like, I'm just paying, like, double rent right now - one for me, one for this loan that, like, lives in my closet.


ARONCZYK: During the pandemic pause, when that loan living in her closet became interest free, Elizabeth said, this is my moment. She kept on paying. And when she got a new job with a signing bonus, she put a chunk of it toward her loans - and she paid them off.

ELIZABETH: My debt-free day was March 21, 2022.

ARONCZYK: Amazing. And what did you do to celebrate?

ELIZABETH: I bought myself some yellow bouquets from Trader Joe's - roses.


ELIZABETH: Yellow roses.

ARONCZYK: If you don't have other debt, this is a savvy, responsible way to use the pause. But for a whole bunch of reasons, it is not what most people have done. According to the New York Fed, less than 20% of borrowers who are eligible for the pause have paid anything toward their student loans over the last two years because they've been using the money for other things.


LAURA: Hi, this is Laura (ph) in Rochester, N.Y., and because I did not have to pay my student loan payments for two years, in part, that is how I was able to buy a house this past December.

UNIDENTIFIED PERSON #1: I did probably the most boring thing that someone could do. I took it, and I increased my 401(k) contribution.

UNIDENTIFIED PERSON #2: I paid off my car loan.

UNIDENTIFIED PERSON #3: I was able to build up an emergency fund in case I lose my job.

UNIDENTIFIED PERSON #4: I bought a keyboard and started taking piano lessons.

UNIDENTIFIED PERSON #5: I took the money and bought a 2002 Blue Bird school bus.

UNIDENTIFIED PERSON #6: The student loan repayment pause - it really is like a lifeline. It fully changes my calculations for the better.

UNIDENTIFIED PERSON #7: My husband and I have been saving my student loan dollars to fund an adoption, and it feels really good to have that money sitting there so we can use it when we get that call.


ARONCZYK: We actually heard from a few people who used the money they didn't spend on loans to have babies. Not sure that that is the debt-free option, but you do you. Now, the pause isn't the only thing happening with student loans because in March 2020, right as the Trump administration suspended student loan payments, candidate Joe Biden tweeted something that he'd go on to repeat many times in his campaign for president. We should forgive a minimum of $10,000 per person of federal student loans. With that, there were now two possible realities for student loan borrowers. In one, there's this miraculous pause where borrowers start paying again at some unknown point in the future. In the other, Joe Biden uses his magic pen and a lot of debt just disappears. Both scenarios create kind of weird incentives for borrowers. Like, if you think $10,000 of your student debt might get canceled, there's an argument for not making payments. But in an endless pause, the idea of a loan starts losing its meaning, especially for people who borrowed in the last few years.

SANDY BAUM: Yeah, I mean, it's bizarre.

ARONCZYK: Sandy Baum studies higher education finance at the Urban Institute. She says for these borrowers, because they've never even made a payment, it's understandable if paying loans is just kind of theoretical and like it just may never happen at all.

BAUM: I mean, if you just think about loans more broadly and you think about - you know, if you went to buy a car and they said to you, you have a choice, you can pay cash or we'll give you a loan. Don't worry, you don't actually have to pay it back. Or maybe you'll have to pay it back starting in five or 10 years, we're not sure. I mean, what would you do? You would take the loan and hope never to have to pay it back.

ARONCZYK: Her point is, the system stops making sense. A lender can't make all of these loans and then never collect. Eventually that does not work, no matter how big the lender is.

BAUM: Somehow people think, oh, the federal government doesn't have to collect on its loans, but that's just not the case.

ARONCZYK: Student loan borrowers owe a huge amount of money, $1.7 trillion. And so far the pause has cost the federal government about $100 billion. That's according to the Committee for a Responsible Federal Budget. Because interest isn't adding up, the average borrower has effectively received $5,500 in debt cancellation. Sandy says, though, this isn't the most equitable way of distributing relief.

BAUM: We're not picking the people in society who are struggling the most, the lowest-income people, the people who have the most burdensome debt. We are subsidizing people sort of randomly.

ARONCZYK: She argues the pause is not good policy, and it's become de facto policy just by being in place for so long. At least one reason that that's happened is, of course, politics. Biden made that campaign pledge to eliminate $10,000 of debt per borrower, and he hasn't done it yet. And to make people start repaying their loans in an election year - midterms are this fall - probably not a great way to win votes.


ARONCZYK: But there are other reasons beyond politics, beyond borrowers who don't want to pay, why flipping the switch back on is actually really hard. That is coming up after the break.


ARONCZYK: Our next borrower's experience during the pause helps explain why it is going to be so hard to flip that loan payment switch on again and why the Biden administration may be so hesitant to do it. Derrick Taleen (ph) lives in Seattle. He shares a one-bedroom rental with his two Dachshunds, which - I don't know, some kind of PLANEY MONEY rule - I think I have to call them wiener dogs. He lives with his wiener dogs, Zaila (ph) and Brocktree (ph).

DERRICK TALEEN: Potato was the previous one...

ARONCZYK: Of course.

TALEEN: ...and he passed away mid-pandemic.

ARONCZYK: I'm sorry.

TALEEN: Yeah, it was - he was very old. It was definitely time for him. It was definitely very hard. But Dachshunds, like the Sith, come in two - right? - one to wield power and the other to, like, seek it or whatever the quote is, right? So I had to get a second Dachshund.

BAUM: That one was Brocktree. He is the one seeking power for now. Anyway, Derrick is 33. He works in tech. He's got a bachelor's in international relations and an MBA from the University of Iowa, which is where he grew up. He borrowed a lot of money to go to school, $90,000. And then when he graduated, he kind of had a hard time getting a good, well-paying job. So he applied for this program the federal government offers where he could pay back his loans according to his income. And if he makes payments consistently, his loan balance will eventually be canceled. For a while, Derrick was making so little that he didn't have to pay anything at all, but the interest was still adding up, which means he now owes even more than he did when he graduated.

TALEEN: Every two weeks, I marked down how much my student loan amount is. I have this dating back to 2014, and then it was $109,000. And now I'm at about $130,000 in student loans, and about a third of that I acquired just in interest over the last 10 years. So it's overwhelming.

BAUM: It's overwhelming. And that is why the pause has been such a big deal for him. For the first time in his adult life, Derrick isn't worrying about his student loans.

TALEEN: The pause has been amazing because I don't think about it. I paid off my credit card debt, which has been plaguing me since - what? - 2014. I bought a brand-new car, and I paid it off. I'm donating to nonprofits. You know, I can go to the store, and I can buy a brand-new pair of shoes just because I want them. And before, it was like I really had to talk myself into it and plan and budget for it. Now I can just go do it. Like, it's been the best.

BAUM: For Derrick, it doesn't make sense to pay down his loans during the pause because under that special repayment plan he has, his loans will eventually be canceled.

TALEEN: So theoretically, if I do everything right, it'll be forgiven after 25 years.

BAUM: But right now, there is an issue with that expectation. Over the last couple of years, it's become clear that there are big problems with the way these sliding scale repayment plans have been working. Basically, they're a mess.

CORY TURNER, BYLINE: What we found is that these plans have been terribly mismanaged.

BAUM: NPR's Cory Turner has been investigating the income-based repayment program that Derrick and 9 million other borrowers are enrolled in. And to understand why it's broken, you need to understand how it works. Most of the time, when you take out a federal student loan, instead of dealing directly with the federal government, you wind up working with a private company that manages the loan on the government's behalf. That company is called a loan servicer. They handle billing and repayment plans. And it turns out that those loan servicers have not been good at keeping track of payments.

TURNER: We found holes in borrower records. We found several loan servicers, including the largest, wasn't even keeping track of qualifying loan payments.

ARONCZYK: And if you're promising borrowers that their loans will be canceled eventually, as long as they pay consistently, not knowing when, say, Derrick has hit his 25-year mark, that means the whole thing doesn't work.

TURNER: So even if a borrower did become eligible for loan cancellation, the servicer wouldn't have known unless the borrower had called and said, hey, am I eligible? And then the servicer would have to trigger a manual recount of two decades' worth of payment records.

ARONCZYK: These are the kinds of details you'd usually keep in, I don't know, a spreadsheet. But...

TURNER: There's not a spreadsheet for that. It's like a game of telephone. Data just gets peeled away. It gets lost. Mistakes get made. Like, this is a big deal if we can't transfer borrower records with fidelity.

ARONCZYK: Now, it's not clear that this is totally all on the loan servicers. They say that years ago, they didn't get clear instructions from the government. The Biden administration has inherited that problem and is trying to play catch-up and fix it. So if you have a student loan and you recently got a letter saying, hi, your loan servicer is changing, this is why. The loan servicer system is being overhauled.

TURNER: The Ed Department committed to make improvements moving forward to help borrowers. And they also committed to help make things right for borrowers who have been hurt historically. And that's a big deal and a big commitment.

ARONCZYK: The government doesn't want to turn the switch back on if all the wiring is faulty and the light bulb might explode. That seems to be one major reason why they keep extending the pause.

DANIEL MANGRUM: The kind of running joke is this is, you know, version2_final_edits.pdf

ARONCZYK: (Laughter) Right.

Daniel Mangrum is a research economist at the Federal Reserve Bank of New York. And he's not just a researcher of student loans. He's also a borrower.

MANGRUM: I finished my Ph.D. in 2020, so I've actually never made a payment on my loans.

ARONCZYK: Daniel has been studying the pause. And he says there might be another reason why it keeps getting extended aside from the politics and the faulty wiring. His research is based on a different slice of student loan borrowers, people who didn't get the full pause because they have this particular kind of federal loan that's not eligible for it. Daniel and his colleagues use anonymized credit report data to study those borrowers' behavior.

MANGRUM: We noticed that there was kind of a temporary decline in delinquency when the pandemic started.

ARONCZYK: So at first, people were doing a better job paying their loans. Daniel figures, OK, people - maybe they got stimulus money. Maybe they paid down some of their debt. Also, these borrowers could apply for a few months of relief during the pandemic, but then they had to start paying again. And that's when things went sideways.

MANGRUM: We found that delinquencies for these borrowers rose. And, just as concerning, we found that some of these repayment troubles spilled over into other debts, like car loans and credit cards.

ARONCZYK: Just like the people we've been hearing from, Daniel could see in the credit reports that sometimes people took on new debt. Like, they bought a La-Z-Boy or a Prius or a condo. And for some people, once they had to pay these new debts plus their student loan debts, they fell behind. They didn't make all the payments. Daniel says that the government didn't give guidance to the loan servicers on things like how much notice to give borrowers to help them go from not paying to paying again. It was all pretty ad hoc.

MANGRUM: There was no policy response when they went back in. You know, their payments restarted, and there wasn't some concerted effort to help borrowers kind of ease back into transition.

ARONCZYK: When the Biden administration announced that the pause was being extended again - you know, version2_finalfinalusethisone.pdf - they cited Daniel's research. Daniel says that without preparation, the restart could be really messy, not only for financial planning reasons, but just for boring administrative reasons, too.

MANGRUM: So many people, you know, moved during the pandemic. The servicers have lost contact with people. There's changed phone numbers. There's, you know, students losing access to university emails. And even for borrowers who were previously, you know, doing fine on their payments, there's even just the added cost of going in and, you know, setting up your autopay, you know, resetting your password that you've forgotten.

ARONCZYK: So the restart is going to be confusing. It's going to be unpredictable. And that is on top of the uncertainty about when it's even going to happen. That is what's been getting to Derrick, the dad to a pair of wiener dogs - not knowing when the pause will actually end.

TALEEN: I don't know how to plan in terms of budgeting. And I'm better off than a lot of people, right?

ARONCZYK: He wasn't laid off during the pandemic. He's got a good job. For him, like he said, the pause has been amazing, giving him a chance to live as a 30-something year old unburdened by young Derrick's debts. But recently, he got a notice from his loan servicer. Once the pause is really finally over, he's going to need to pay about $900 a month towards his loans. Plus, his rent is going up.

TALEEN: Seattle has a new law that if they raise the rent 7% or more, they have to give you six months' notice. And I got that notice 'cause they're raising it $250, something like that. And that's when it really hit me. I probably won't be able to afford to stay here. So I have to figure out, you know, do I stay in Seattle? Do I move to the suburbs? Do I move back to Iowa, where rent is significantly cheaper? How does that affect, you know, working? There's so much unknown, so much uncontrollable. All I can do is sit and wait until I know more and just kind of cry and hope that I make it through it.

ARONCZYK: A new date has been set. The switch is supposed to flip back on on August 31. The Biden administration says, if you have a student loan, you should start preparing. Get ready to send those payments in again. So, yes, go ahead; put that date in your calendar, but maybe with a little asterisk beside it.


ARONCZYK: To everyone who sent emails or messages about their student loans, we read and listened to each and every one. Very extra special thanks to you. When we say email us at planetmoney.org, we mean it. We're also on Instagram, Twitter, Facebook and TikTok - @planetmoney. Also, PLANET MONEY TikTok has been nominated for a Webby Award. If you are a super fan, head on over to the ballot page, and please throw us a vote. We put a link in the show notes so you can find it.

Today's show was produced by Willa Rubin. It was engineered by Isaac Rodrigues and edited by Molly Messick. PLANET MONEY's executive producer is Alex Goldmark. I'm Amanda Aronczyk. This is NPR. Thanks for listening.


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