SCOTUS’ Student Loan Decision and Biden’s Plan B

BIANNA GOLODRYGA, CNN HOST: After the Supreme Court ruling, striking down most of President Biden’s Student Debt Relief program, loan interest resume on September 1st of 2023. And payments will be due starting in October. The Consumer Financial Protection Bureau estimates that one in five student loan borrowers will struggle to make payments once the pause ends. Author Paco de Leon host the “Weird Finance” podcast and joins Michel Martin to discuss how people will be impacted by these changes.

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MICHEL MARTIN, CONTRIBUTOR: Thanks, Bianna. Paco de Leon, thanks so much for joining us.

PACO DE LEON, HOST, “WEIRD FINANCE” AND AUTHOR, “FINANCE FOR THE PEOPLE”: Thank you so much for having me today.

MARTIN: So, we call do you because you are a kind of financial advice guru expert and author, you know, focusing on millennials and also creatives. You know, you’ve written books, you’ve written a column. We called you because you have a network of people who are affected by the student loan phenomenon or crisis or whatever you want to call it. Student loan interest is going to resume on September 1st of 2023. Payments are going to be due starting in October, that’s according to the Department of Education website. Are you hearing from borrowers in your network, and what are they telling you?

DE LEON: A lot of people are frustrated, and I can understand where they’re coming from. Their expectations have been mismanaged. There was so much expectation when it came to student loans being forgiven, and when the Supreme Court struck that down, a lot of people have felt left out. So, it kind of feels like somebody is telling you, you know, in a couple of weeks, you’re going to have an amazing birthday party, and we’re going to have cake and all your friends are going to be there, and then, the news changes and suddenly, it’s, actually, you’re not going to have a birthday party. You’re going to eat a tomato and I hope you have a great time. Maybe it’s not that dire, but I want to illustrate that people had an idea in their mind, they really believed that student loans would be forgiven. And now that they have to resume payments again, they feel really frustrated. I will say, though, there are folks who have been critical all along. They’ve thought the government is not going to help me, they are not here to save me, and I feel like those folks feel a lot more mentally and emotionally prepared to start paying their payments again.

MARTIN: And obviously, people knew that there was kind of a policy push to forgive these loans, but a lot of people haven’t been paying them because they have been on pause, right? So, what difference do you think this has made to the people that you are in touch with? And more broadly, to the people who — you know, whose financial situations you’re acquainted with?

DE LEON: If inflation hadn’t been growing at the rate that it was, I think that folks would not — I think folks wouldn’t feel nearly as sensitive to resuming their payments. So, let’s just say, for example, somebody’s payment is about $1,000 a month for the last three years, they were not using that $1,000, in a beautiful, perfect world, they were still taking that money and they were putting into a savings account, maybe even investing it, maybe even continuing to make their loan payments. But what I’ve learned over the many years in my work is that even though we know what’s good for us, know the things that we “should be doing” from a personal finance perspective, one, sometimes we do act outside of our best interests, but two, sometimes things completely outside of our control impact what we’re able to do with our money. And we’re seeing what happened with inflation. So, I think a lot of people are feeling the pinch. They’re having to spend more in areas that they didn’t necessarily predict over these last three years, like food, especially. And that is where a lot of people’s money is going. So, to take away from where they’ve been able to put their money, it just feels like everybody is feeling the pinch.

MARTIN: You remember, like, President Biden, this was one of his key campaign promises. He wasn’t the only one on the democratic side, he was not the only one. I have to say, this was a promise of his. He put forward this proposal. The Supreme Court, you know, blocked the deal at the end of June. So, people, are they primarily sort of anxious? Are they angry? And if they are angry, who are they angry at?

DE LEON: A lot of people are upset with the Supreme Court, most certainly. A lot of people are upset, in general, that their expectations for their lives were mismanaged. I grew up — I’m a millennial. I grew up in the ’90s when the economy felt strong. We had a different attitude about how we consumed back in the ’90s. We have this idea that home prices are going to continue to rise, incomes are going to continue to rise. You’re going to go to college and you are going to be better off than your parents. That was told to us. And for a lot of my peers, a lot of my clients, a lot of the people that I work with and I speak to, they really internalize that belief. They felt the pressure from society to take out loans, to go to school, because we were told that was the only way to get ahead, that was the only way to be better off than our parents. And then, to arrive here, where tuition inflation is completely and utterly out of control, wages have not increased, there is lots of different places that we can place our anger, and that’s really what I’m seeing with folks.

MARTIN: Just the partisan aspect of this penetrate. I mean, the fact is that several Republican-led states and conservative groups are the ones who filed legal challenges against the Loan Forgiveness Program, which isn’t to say there aren’t critics in other sectors, but they are the ones who advanced the opposition and organized around it and took legal action against it. And I’m just wondering if the partisan aspect of it is visible?

DE LEON: Absolutely. We’re living in a time where America is so divided, it’s truly heartbreaking to see. And respectfully, I know I’m here speaking as a media on the media, but we are living in a time where getting people upset is profitable. And so, being able to spin this story, making it overly political and highlighting the division, it gets people upset, it gets people “engage,” which means watching, reading, clicking, and I think that we can’t discount that power of our economy, the attention economy outrage, and all these issues that should be human issues, right? Because when it comes to burdening our youth with debt, it’s overall bad for the economy. My peers are deciding not to have children. They can’t afford to buy homes. A large share if their income is going towards student loans. And at the end of the day, that’s not good for the economy. And taking that to another layer, when education is not affordable and accessible, that’s putting America at a disadvantage. If we can’t educate our citizens, how are we going to be competitive in the global economy?

MARTIN: Do you think that the opposition to this is primarily political or partisan, as in, this advantage is one party over another, or do you think it’s sort of ideological? Because what we’re hearing from some people is that they feel like it’s just — some people say it’s just wrong, you know, like, its people took out these loans, and they knew what the terms were and they — you know, if they didn’t want to pay the money back, they shouldn’t have taken out the loan?

DE LEON: I think it’s both, Michel. I think that some people are looking at this as an entirely political issue. It’s an issue of fairness. It’s an issue of, you know, these people are getting something that they don’t deserve, right? And I do think other people are looking at it from a more puritanical perspective and a moral perspective that if you borrowed money, you ought to pay it back. And while I mostly believe that that’s the case, you have to really look at the realities. Students were 18 years old when they were offered these loans. The rate of inflation, when it comes to tuition, is astronomical. There’s few things that have risen in price the way that tuition has, and I think, really, that’s the larger question we have to ask, has education improved by 300 percent or have administrators’ salaries improved by that much, right? So, I think there’s — it’s a big ball of wax. There’s a lot to untangle. I definitely think a lot of people are — a lot of people see it as a partisan issue, as a political issue, and a lot of people do see it as a moral issue.

MARTIN: So, let’s talk a little bit about some of the things that you raised and let’s sort of isolate them. And so, let’s talk first about that Biden administration. I mean, they have — they’ve announced a plan to forgive $39 billion in student loan debt for around 800,000 borrowers under the save or Saving on a Valuable Education Plan. It’s not as expansive as his initial proposal, but it does help a lot of people. I mean, 800,000 is not like zero people. So, who is covered under this? And are people aware that this is a possibility?

DE LEON: So, for the people who are getting blanket forgiveness, their loans are going to be forgiven, it’s going to be about 804,000 folks. Those people — this is a correction in errors, administrative errors and bureaucratic errors that have been happening. So, the people who are qualified, you have to have at least made 20 years of payments, which is a lot of payments. So, if you’re nowhere near there, you are not in this 804,000-camp, unfortunately. But for — there’s statistics that has been floating around for many, many years, and it said that 98 percent or so of folks who applied for loan forgiveness have been denied. So, another way to look at it is only 2 percent of people over the years who have applied for forgiveness have been granted forgiveness. And this is a lot — a big reason is because of administrative and bureaucratic issues. So, the lenders, they are poor at record keeping or borrowers were kind of put in this gotcha situation, where they needed to have been following these administrative tasks for X amount of years. And then, if you did that and then, if you have proof of that, then your loan will be forgiven. So, this forgiveness is frankly a long time coming for these folks. People are already starting to get notified by e-mail. I have spent some time looking on that Reddit threads and reading people’s responses. You know, people are on there saying, oh, my God, I’m one of 800,000. This changes everything. This is a life-changing amount of money. So, that’s been really heartwarming, actually, for me to go on and see people having an entirely different perspective on student loans, like they’re feeling joy and they’re feeling gratitude, and I think that, you know, we should all take that moment to appreciate that this is finally happening for those folks.

MARTIN: Is there an argument though that the Biden administration should have taken this approach to begin with instead of swinging at the fences for something that was destined to be that controversial? I don’t know what your — what are your thoughts about that?

DE LEON: Yes, I’m trying to think. You know, I’m not necessarily the political expert here. So, I wouldn’t know in terms of what the right play was and how all those chips were going to land. I do think people’s expectations were horrendously mismanaged, and that’s really frustrating. And the SAVE program has been — it was introduced earlier this year, and now, it’s taking center stage I think only because Student Loan Forgiveness was struck down by the Supreme Court. And now, you know, this is an opportunity to highlight this thing that has — was already being pushed.

MARTIN: Do you have advice for people who won’t qualify for the SAVE plan, and especially for people who follow your writings and who do feel the kind of despair that you’re talking about?

DE LEON: Yes. From a practical perspective, I would say make sure that you gather all of your information and that you know your student loan servicer. That’s the first thing. So, Navient was a big player in the student loan game. They left the industry in 2021. So, all those folks whose launch were serviced by Navient, they’re somewhere else. You need to figure out who your loan servicer is and make sure that they have all of your latest contact details, your e-mail address, your mailing address, your phone number. And if you’re not sure who your servicer is, you can go to studentaid.gov and you can find your account dashboard and you’ll be able to go to your loan services section and see who your servicer is. And unfortunately, I would say, the other thing that you could do from a practical perspective is practice paying your payment now. So, you can start taking, you know, what you expect your payment to be and sweeping that into a savings account and doing that over the next few months. And just living with that and feeling it and seeing how your finances are impacted by it. And if you’re feeling that struggle, you’re not able to make ends meet, that’s, you know, a big sign that you need to reach out to your servicer and see what plans are available to you in terms of a repayment plan. I have some impractical advice, Michel.

MARTIN: Yes. Let’s hear it. What is that? Yes. Play Powerball?

DE LEON: Yes, exactly. Play Powerball.

MARTIN: That’s not a good plan. Let me just say that, that’s not a good plan. What’s your impractical advice?

DE LEON: You know, my impractical advice is that we’re all living in an uncertain time. There is so much that we can’t predict and there’s a lot outside of our control. So, you know, when you’re feeling overwhelmed by your finances, just pause. And this is going to sound really silly, but pause and take a deep breath. And in that moment, find the ways that you feel safe, find the ways that you feel secure. When your chronically stressed like that, what happens is when you make financial decisions, big or small in that state, you’re making them from a place of stress and anxiety and not from a place of cognition. When that happens, what you do is you “make bad financial decisions,” right, because you’re in a bad state. And then, it’s a vicious cycle.

MARTIN: Why do you call that impractical advice? I think one of the points that you’ve been making in your work is that your emotions do affect your financial decisions.

DE LEON: My whole life, my whole career, I’ve been working in financial services. My first job was as a debt collector for a big bank. So, I understand the kinds of objections that people have when it comes to my ideas and my advice with money. And I would say, up until kind of recently, yes, folks did not want to admit or maybe did not see the link between our emotions, how we’re feeling and our financial situation, that they impact one another, especially my peers, especially other personal finance experts. I think it’s really easy to sell this idea that if you follow these steps, and you do these things, then you’re going to be OK. But what I’ve had to confront with my own personal finance journey and seeing my peers and my friends and my community struggle with their finances is that, oftentimes, our emotions get in the way. And when people look like they’re acting outside of their best interests, oftentimes there are some trauma there, there is some wounding there, there is some stress and anxiety that’s been chronic, and that needs to be addressed so that in the moments we have our agency we are really doing the best we can with that little window.

MARTIN: I want to note that the Consumer Financial Protection Bureau estimates that one in five student loan borrowers will struggle to make payments once the pause ends. This kind of looks back to something that you’ve talked about earlier which is that, what does it say to you about either the cost of college education or how we view college education that so many people are in that situation? Does it say something that we need to think about more broadly?

DE LEON: Absolutely. We are — America is wonderful for a lot of reasons. And I am grateful that I have the opportunity to build a life in this country. But one of the big downsides is the size of our country is that everyone is always trying to make a buck off of everyone, and that permeates our culture. Our culture is just — it’s steep and saturated in that idea. And we’re even seen it with student loans. It doesn’t make sense to be profiting off of our citizens in that way. If we help them, if we educate them, if we arm them with skills, with trades, with knowledge so that they can go into the marketplace, they can actually, you know, add value, create companies, be healthy, effective workers, again, that is going to be better for the economy overall. And I think that the way that we’re doing things right now is incredibly short sighted. It’s how can we make a profit off of anyone at any age and we’re not thinking about investing in our citizens in the long run??

MARTIN: Paco de Leon, thank you so much for talking with us.

DE LEON: Thank you so much for having me, Michel.

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