Over the past few decades, the American dream has changed for the lives of millions of Americans. What were once aspirations to own a home, start a family, and have a successful career have given way to a greater force: paying off student debt.
These are the people Joe Biden was addressing when he outlined his plan to forgive $10,000 in student debt for 26 million Americans earning less than $125,000 last summer. “People can finally start to get out of this mountain of debt,” Biden said at the time.
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After the Supreme Court’s conservative majority blocked the plan, the Biden administration announced it was looking for a “plan B.” But in the meantime, millions of Americans are back to square one, their plans for the future on hold.
Denine Blas, 62, a mother of three in Washington state, has felt the burden of student debt for much of her adult life. After attending several for-profit schools in hopes of landing a steady job, she ended up with $101,000 in student loans, much of which remains to be repaid.
“I couldn’t have anything in my name. Everything had to be in my parents’ name: my car, my house — I couldn’t even get a credit card, I couldn’t even get a cellphone in my name,” Blas said.
For Maddy Clifford, 36, freelance writer and debtors union activist Debt Collective, who graduated with debt after graduating from undergrad and then even more so after graduating with a graduate degree, kept her from building up a savings.
“I kind of gave up owning a house. I don’t think it’s something I’ve ever really thought about,” said Clifford, who has $120,000 in loans. Having debt has “affected relationships…it’s like that embarrassing thing I’m ashamed to bring up.”
Student debt in the United States has soared to more than $1.75 billion, more than doubling over the past two decades, with more than 43 million Americans in debt.
Multiple studies and polls over the years have shown how student debt has directly held back many important life milestones, such as owning a home or getting married, and preventing people from building up savings that can support themselves and their lives. those of their family as they age.
A 2022 survey from CNBC and financial firm Acorn showed that 81% of people with student loans said they had delayed at least one major life milestone because of debt. In a 2021 National Association of Realtors survey, 60% of millennials who don’t own a home say student loan debt has delayed any chance of buying a home. Another poll, from 2018, found that half of women who had student debt said their loans affected their decision to have children.
A 2020 survey found that a third of respondents aged 18-34 said they would postpone their wedding until their debt was paid off.
With so many people delaying major life events because of loans, “you’re not going to achieve a sense of the American dream at a time in your life when it means a lot,” said work professor William Elliott III. social at the University of Michigan, which studied the relationship between student debt and wealth creation.
Elliott’s research found that taking out loans of $10,000 is associated with an 18% decrease in the rate of achieving median net worth. This means that those with loans do not start saving until later in life.
“Anyone who knows about retirement savings knows that the earlier you start, the more money you will have later. So even a five-year delay can be monumental,” Elliott said.
Not only does this impact borrowers, but it also affects the next generation growing up with parents in debt. This further exacerbates the racial wealth gap in the United States, where the median total assets of a black household are more than five times lower than the median assets of a white family. Across all racial groups, black borrowers carry the most debt, even though they are still underrepresented in higher education. The racial income gap also makes it harder for black borrowers to repay their loans, as black graduates earn on average 15% less than white college graduates, according to the NAACP.
“The racial wealth gap is huge between whites and blacks, and whites and Hispanics,” said Nicole Smith, chief economist at the Center on Education and Workforce at the University of Georgetown. “Part of that is because there’s simply no money left over from the net income from one generation to the next.”
Smith added: “When wealth is passed on to the next generation, it really comes out in color.”
Women also have more student debt than men, holding about two-thirds of all student debt. Women of color are doubly affected: Black women have 47% more student debt than white men and 27% more debt than white women, according to the NAACP.
The impact of student debt on the financial future of Americans has shown itself most clearly during the pandemic, as student loan payments and interest have been suspended. Research from the Jain Family Institute showed that the three-year payment break improved the financial well-being of borrowers, who saw improved credit scores and lower delinquencies. More borrowers were able to get credit cards and car loans and buy homes for the first time in years.
“Home ownership is the best way to build up wealth, and especially to pass it on. What we’ve seen over the past decade is that homeownership among young Americans who have increased their student debt has declined,” said Eduard Nilaj, associate researcher at the Jain Family Institute.
“Since the repayment break, we’ve actually seen a shift in direction where … people in debt have actually managed to rejoin the housing market because they don’t have to pay their ever-increasing student loans.”
Refunds are expected to start earning interest again on September 1, with payments starting again on October 1. After the Supreme Court ruling, Biden announced new arrangements for the start of payments in the fall, but progressive lawmakers and activists called on Biden to fight more aggressively against returning the loans.
The start of payments will be difficult for borrowers like Blas and Clifford, who have found room to breathe without the weight of their debt. Blas was able to support her daughters and buy a sofa, so she didn’t have to sit on the floor. Meanwhile, Clifford accumulated savings.
“I’m not worried about how I’m going to get to next month. Instead of thinking month after month, [I can look at] what’s going to happen in the next six months,” Clifford said. “I finally have savings for the first time in my life. But if I tried to repay that loan, I wouldn’t have a chance to save for retirement.