America’s student loan balances saw their biggest decline in 20 years
Total U.S. student loan debt fell to $1.57 trillion in the third quarter of 2022 from $1.59 trillion in the second quarter. That’s the biggest drop in at least 20 years, according to data from the New York Federal Reserve’s Household Debt and Credit Report.
It’s a small drop, but still “very significant,” says Jacob Channel, senior economist at LendingTree. The Fed credits student-loan easing efforts enacted by the Biden administration, such as overhauling the Public Service Loan Forgiveness (PSLF) program and paying off debt for many students at fraudulent schools.
“It’s important to remember that that difference is equivalent to $20 billion,” says Channel. “While there’s clearly still a lot of student loan debt for people to pay off, I think the decline…is still good news.”
It’s also a slight relief from America’s overall student loan crisis. As balances climb higher and higher each year – from $240 billion in 2003 to $1.57 trillion today – government aid programs appear to be having some effect.
President Joe Biden has made student loan facilitation a priority throughout his tenure, particularly for those who have been cheated, are disabled, or should qualify through an existing forgiveness program but were unable to due to bureaucratic mismanagement. Currently, the government says it has lent nearly $48 billion to over 1.8 million borrowers.
“That’s 1.8 million people who will probably now have an easier time saving money, keeping up with other bills, or getting approved for things like mortgages,” Channel says.
In addition to debt relief, there are other factors that are also likely to affect the overall student loan debt. For one thing, a drop in college enrollment in the US could lead to lower student loan utilization simply due to the fact that there are fewer borrowers.
Additionally, federal student loan rates have been fixed at 0% for nearly three years. That slows the growth of existing loans, which could be part of the difference.
Still, the Fed notes that the credit easing enacted by the Biden administration has helped offset lending that typically occurs at the start of the school year.
Widespread forgiveness is still on hold
In addition to paying off debt for scammed borrowers and improving the PSLF, Biden is seeking to forgive up to $10,000 to $20,000 to any federal borrower who meets certain requirements. But that widely publicized plan, which would cancel hundreds of billions of dollars in debt, is on hold amid legal challenges.
On Wednesday, a federal appeals court declined to stay a Texas judge’s decision that the plan was unlawful. The Biden administration has already filed a separate lawsuit in the US Supreme Court; SCOTUS said Thursday it would take up that case.
Until SCOTUS makes its decision, the US Department of Education cannot cancel debt under the one-time program and has even stopped accepting debt cancellation requests. According to the White House, if the aid program could continue, around 16 million borrowers whose applications have been processed and approved would be forgiven, with more to follow. Some estimates suggest that around $400 billion in debt could be forgiven if every eligible claimant applies and is approved.
Biden announced last week that the pause on federal loan payments and interest accrual would be extended while the lawsuits expire.
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