People who borrowed money to pay for college or trade school owe a combined $1.7 trillion to their creditors. Even before the coronavirus upended America’s economy, many of these borrowers were struggling to keep up with payments, which also made it harder for millions of people to save for a home, put aside money for retirement or even afford basic necessities. 

The vast majority of this debt is from federal student loans. But borrowers also hold a collective $130 billion in private student loan debt. These loans, made by banks and other private lenders, often lack many of the protections and payment flexibilities that federal student loans provide. As a result, private student loan borrowers are particularly vulnerable to financial shocks.

The current COVID-19 pandemic has laid bare this reality. Millions of Americans are currently facing economic uncertainty as layoffs and furloughs continue to mount. This is particularly true in Louisiana, one of the epicenters of the pandemic. 

CARES Act provides (some) relief
Federal student loan borrowers have received some relief through the CARES Act, in the form of temporary payment suspensions and protections against collections on their student loans. The law mandates an automatic six-month suspension of required payments, with interest waived from March 13 to Sept. 30 for all borrowers of federally owned loans. 

But private student loan borrowers are excluded from this economic relief. And while some private lenders have offered varied forms of payment relief for those who have lost income due to the crisis, that relief is not consistent across the market, and is not guaranteed.

The CARES Act also includes $170.3 million in relief funding for Louisiana colleges and universities to help prevent cuts due to the economic downturn. Half of this money must be set aside for emergency student financial aid. This requirement is an important protection for students, but the emergency aid funding alone is not enough to make up for Louisiana’s historically low investment in need-based financial aid.

The merit-based TOPS program currently receives 91% of the $331 million Louisiana spends each year on financial aid. The program disproportionately serves traditional college students from wealthy, white families. The needs-based Go Grants program, by contrast, is available to all students who demonstrate financial need, including adult learners, but receives only 9% of the state’s funding. 

With little access to financial aid, low-income students and adult learners often are forced to take out loans to pay for college and improve their chances of getting a high-paying job.  

The face of the student loan debt crisis in Louisiana:
Louisiana has 614,700 residents who collectively have $21.3 billion of outstanding student loan debt. While the state’s average median household income is $47,942, its average student loan debt balance is $34,651. This forces many Louisianans to choose between paying down their debt and meeting their immediate needs. Nearly $3.14 billion, representing 14.7% of the debt in Louisiana, and 1 in 5 borrowers in the state, is 90 or more days past due, a sign of the widespread difficulty that the state’s borrowers have in meeting their loan payments.

Student loan debt also contributes to the decline of rural Louisiana. 106,604 borrowers live in the rural parts of the state, and research from the Federal Reserve shows that students are less likely to remain in rural areas if they have student loan debt.

And while we may tend to think of student debt as a problem mostly faced by young people, the debt crisis is also hurting our senior population. 36,432 borrowers in the state are over the age of 60, including both seniors holding debt on their own and those carrying debt from loved ones who needed extra resources due to loan limitations. The sad reality is that when a borrower falls behind on their payments they face wage garnishment, negative credit rating that would affect home ownership and access to capital and few options to loan forgiveness.

Only Congress can fix the federal student loan system. But Louisiana policymakers have several options for reforming private student loans. Last year the Legislature passed the Barriers to Work Act, which removed the ability for occupational license boards to revoke a license on student loan debt. This year several bills have been introduced to continue providing protections for student loan borrowers, which deserve consideration during the abbreviated session:

  • House Bill 676 ‘Release the Transcript’
    While defaulted student loans can lead to long-term problems like bad credit and wage garnishment, debts owed directly to the school, often called “accounts receivable,” have a much more immediate effect: a school can decide to withhold a student’s transcript, preventing that student from transferring credits or obtaining a higher-paying job. As one researcher notes, “a withheld transcript puts a student in a Catch-22. She may need the transcript to complete her degree to get a higher paying job. But without the higher paying job, she cannot get the extra income to pay off her debt and have her transcript released.”

    HB 676 would ensure that students are not handcuffed in pursuing educational and career opportunities by the practices of certain schools and colleges.    House Bill 676 will impact all institutions, but will likely have the most impact on for-profit colleges. Transcript withholding is usually only a lucrative tactic at for-profit schools as a means to bully students into paying expensive fees that are often fraudulently induced.
  • House Bill 507 Protections for Student Loan Cosigners.
    This bill protects cosigners, including older consumers, from bait-and-switch marketing and deceptive lending tactics when loans are originated. As AARP reported in 2019, “student loan debt is soaring for borrowers over 50.” HB 507 requires enhanced disclosures for cosigners and sets standards for lenders offering new loans with “cosigner release” benefits, thereby ensuring that borrowers and cosigners of private student loans are given all the necessary information before signing on the dotted line and throughout repayment.
  • House Bill 340 Statute of Limitations for Debt Collection on Student Loans.
    Private student loan borrowers are often saddled with predatory, high-cost loans or worthless degrees from for-profit schools – and sometimes both. When borrowers default on these loans, their lenders often take them to court. New research shows that these suits disproportionately target communities of color.House Bill 340 would place a five-year liberative prescription, a type of statute of limitation, on private student loans. Currently, Louisiana law provides for a 30-year liberative prescription on debt owed to education institutions in the state, but does not address debts owed to private lenders making postsecondary educational loans.
  • HB 837 Increased Enforcement Powers to Protect Student Loan Borrowers.
    This bill bars private student loan servicers from misleading their customers or engaging in any unfair, abusive or deceptive trade practices. In effect, it fills in some existing gaps in state law where the market has evolved faster than the laws. For example, the servicer can’t misapply payments to build up late fees.

These bills are only a start. They are no substitute for federal action, as Congress should include broad, universal debt relief to all borrowers with state or private loans in the next stimulus package. But the Legislature needs to do its part to ensure that higher education becomes more affordable for people in financial need during this economic downturn.