The phrase “student debt crisis” might conjure up a person in their 20s worried that their six figures of debt will keep them from marrying or buying a house. It should probably be someone more like Maria Hurtado.
Hurtado, 46, who left school in 2000 with $6,000 in loans, is now an administrative assistant for a window and door manufacturer in Montebello, Calif. But she only recently began paying her debt back regularly after years in various degrees of nonpayment, including a default that ruined her credit.
Hurtado struggled to find steady work after earning a home health services and occupational therapy certificate from now-defunct Corinthian Colleges. A subsequent colon cancer diagnosis made working — and staying current on her loans — near-impossible.
“I couldn’t pay,” she said. “I was really sick. I couldn’t think straight, so I just let it go.”
People like Hurtado have particular trouble paying off their loans, research shows. Thirty-five percent of those who borrowed less than $5,000 and started repaying loans in 2011 defaulted within three years, according to the White House Council of Economic Advisers, as did 31% who borrowed between $5,000 and $10,000 — and only 4% of those with at least $40,000.
And Hurtado has a lot of company: Of the more than 44 million Americans who share $1.3 trillion in outstanding student debt, more than 16.7 million — nearly 38% — have balances below $10,000, according to the Federal Reserve Bank of New York .
Their struggles are little-discussed in the political and cultural debate about how to address the combination of increased student debt and sluggish wage growth that has left millions struggling to pay off their loans and build wealth.
Student debt and college affordability has featured prominently during this presidential election campaign. Some of the ideas discussed, such as tuition-free college, could help future students. But politicians have made little mention of borrowers struggling with smaller balances, instead focusing on proposals to help entrepreneurs, public servants and those with higher debts.
“We very rarely recognize that there is a sizable proportion of students who have lower amounts of student debt and are struggling to repay them,” said Michelle Cooper, president of the Institute for Higher Education Policy , a research organization focused on higher education.
Borrowers can be ‘locked into their current socioeconomic situation’
Experts offer wide-ranging explanations for why relatively small amounts of student debt challenge so many borrowers.
Many borrowers either failed to graduate or earned a certificate or degree with little economic value: Only 56% of borrowers who left college with no degree are successfully paying off their debts, according to the Department of Education. (While borrowers with large balances also face serious challenges, they often have degrees that can help them earn enough to avoid default.)
And small-balance borrowers are often people who would benefit the most from higher education. Because they don’t finish school or don’t earn a degree with high labor market value, they don’t reap the rewards, said Colleen Campbell, a senior policy analyst at the Association of Community College Trustees , who has studied these borrowers .
“There are a significant number of students and individuals, particularly people who are from first-generation college, low-income and underrepresented backgrounds that, when they default on this debt, are locked into their current socioeconomic situation,” said Campbell.
If borrowers feel their degree didn’t help them economically, they may resent the debt and try to ignore it, said Jason Delisle, a resident fellow at the American Enterprise Institute , a right-leaning think tank, who has held focus groups with people struggling to pay off small loans.
Brittney Fuston finished her medical assisting program at Baltimore’s All-State Career College near the top of her class, but she spent two frustrating years seeking work in the field even as she had to pay off her student loans.
Fuston, 22, deferred loan payments and avoided default while she worked at Sears, but interest on the $9,500 she left school with in 2014 kept building. She started making payments once she found work in her field, but work has been unsteady, and she’s currently unemployed.
She feels like she bought into the idea that an education would bring possibilityv — and instead was just stuck with debt. “I kind of feel like we’re being swindled just to get an opportunity in this world,” she said.
Nongraduates, experts say, are less likely to undergo the student loan exit counseling the government requires schools to conduct before a student graduates or withdraws. While that counseling is required for all student loan borrowers, experts say tracking nongraduates is harder.
And borrowers in dire financial straits may “rationally” prioritize other expenses over student debt because, Delisle notes, unlike a home or car loan, there is no object to be repossessed. That can become problematic: While the consequences for missing student loan payments are minimal — the interest rate on the loan doesn’t rise, for example — default can lead to penalties including wage garnishment and offsets of tax refunds and social security benefit checks.
Leigh Ferrin, an attorney at the Public Law Center in Santa Ana, Calif., said she regularly works with borrowers who make roughly $1,900 in monthly take-home pay — and sometimes less. On that budget, a monthly $50 student loan payment could mean a trip to the food bank, she said.
“People find ways to make it work, so maybe it doesn’t seem like a big deal,” she said. “But if you actually looked at their income and outgoing expenses, they actually can’t afford it.”
For low-balance borrowers, proposed solutions may not help
Few policy makers have proposed solutions geared toward low-balance borrowers.
Democratic nominee Hillary Clinton has proposed making public college free for families making $125,000 or less, which could help future students avoid leaving school with debt. Many of the popular proposals aimed at current borrowers, however — including allowing borrowers to refinance loans at lower rates — are often more helpful for those with larger balances. And Republican nominee Donald Trump has acknowledged that student debt is a problem for many Americans but hasn't offered specific policy proposals.
Some researchers have suggested automatically placing all borrowers in plans that deduct payments based on their income, which could keep payments manageable and keep more borrowers on a payment schedule. But while those programs may help borrowers avoid default, experts say they do little for borrowers with relatively small loans.
Under the standard repayment plan for federal student loans, borrowers have 10 years to pay off their debts. But the plan also requires a minimum payment of $50 a month. That means borrowers with a $3,000 loan and a 3.76% interest rate — the current rate on federal student loans for undergraduates — would be required to pay their loan off in roughly 5½ years under the standard repayment plan, according to the Department of Education’s repayment estimator ; someone with a $15,000 balance would get the full 10 years.
Borrowers who cannot afford the minimum $50 monthly payment can access income-driven repayment programs, which ultimately forgive loan balances after at least 20 years of payments.
But borrowers with short stays in school and small debts may pay them off before they qualify for forgiveness, making those plans less appealing. “The time spent paying it back versus the time enrolled is going to start feeling so out of whack that it is going to be perceived as unfair,” said Ben Miller, the senior director of postsecondary education at the Center for American Progress , a left-leaning think tank.
Even borrowers who do use these programs can find it difficult to move up the economic ladder, said Sharon Djemal, director of the consumer justice clinic at East Bay Community Law Center , whose clients include borrowers making roughly $2,700 a month. As the payments are stretched over a longer period, the debt grows and many borrowers find it hard to make a dent.
When borrowers do make it to the forgiveness point, the loan discharge will is taxed — a burden Djemal says many of her clients can’t afford. (The Obama administration proposed getting rid of those taxes in the budget it sent to Congress last year, but lawmakers have yet to pass that recommendation into law).
“If they start to make money, the money gets taken,” said Djemal. “When people didn’t get much from their education, the fact that it is just hanging over them is really challenging. It is something that is going to follow them around.”
The Department of Education declined to answer specific questions about help for borrowers with smaller balances. In recent years, the agency has geared efforts toward minimizing the financial risk of attending college and helping borrowers manage debt, including last year’s launch of the College Scorecard , the tightening of standards for schools, and the expansion of income-driven repayment programs.
Barbara Hughes is grateful for her income-driven repayment program, which has helped her manage payments toward the $5,000 she borrowed in 2003 to attend massage therapy school. Still, she says, the debt is a major source of worry. “It bothers me,” said Hughes, 44, who lives in Anaheim, Calif. with her mother.
She is unsure of when — or if — her debt will ever be paid off. She’s struggled to hold down steady work because of her health due to health issues, and she says her loans have made it more difficult to get her life on track.
“I’m living at home, I don’t go many places, I can’t afford anything,” said Hughes. “That is a lot of sacrifice. “I rely on my mom a lot and that stresses me out.”
This story was first published on Oct. 10, 2016.