Of borrowers who had outstanding student debt in 2009, more than 25% had a larger balance by 2019, according to an analysis published by the Jain Family Institute.
Since Brandon Hartenstein graduated with his master’s degree in 2010, his student debt has ballooned from roughly $50,000 to about $110,000, despite switching careers to earn a higher salary so he could put more money towards his bill.
Hartenstein decided to pursue a master’s of science degree in counseling because it seemed like a field that fit with his interests and that would provide him with a satisfying career he could grow into. He also looked around at the job market in 2008, when he was graduating from college, and, like many, thought it would make sense to spend more time in school.
Hartenstein switched to a payment plan that allowed him to repay the loan as a percentage of his income, but his salary was so low that the payments didn’t cover more than interest. “It is basically a political decision made by Congress based on whatever seems to make sense at the time and what works for the cost estimates,” said Shireman, who has worked on student-loan policy in various capacities on Capitol Hill and in the White House since the late 1980s.
In 1992, Congress expanded the loan program to include all students regardless of income. As part of the change, loans made to this new group of borrowers with higher incomes would accrue interest while students were in school. Previously, when student loans were limited to low-income borrowers, the government subsidized the interest while they were in college.
Lawmakers assumed that a growing balance in a borrower’s early years of repayment, while their income was still low, would eventually shrink as their income grew, Shireman said. Letting the interest build early on allowed the government to recoup the bulk of the funds it lent to these borrowers who were ultimately successful in the labor market.
Advocates and borrowers have said student-loan servicers — the companies that manage the repayment process on behalf of the government — have actually made it more difficult for borrowers to stay on track towards having their debt cancelled.“All of this was just a choice about the design of the program,” Shireman added. Theoretically, you could design an income-driven repayment program that caps the amount the debt builds, he said. But that’s not what happened.
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