Over the last few decades, the American dream has shifted for the lives of millions of Americans. What once were aspirations to own a home, start a family and lead a successful career has given way to a bigger force: paying off student debt.
Those were the people Joe Biden was addressing when he outlined his plans to cancel $10,000 in student debt for 26 million Americans making less than $125,000 last summer. “People can start to finally crawl out from under that mountain of debt,” Biden said at the time.
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 future plans on hold.
Denine Blas, 62, a mother of three daughters in Washington state, has felt the burden of student debt for much of her adult life. After attending multiple for-profit schools with hopes that she could land a stable job, she ended up with $101,000 of student loans, with much of it still to pay off.
“I couldn’t have anything in my name. Everything had to be in my parents’ name: my car, my home – I couldn’t even get a credit card, I couldn’t even get a cellphone under my name,” Blas said.
For Maddy Clifford, 36, a freelance writer and activist with debtors union Debt Collective, graduating with debt after getting her undergraduate degree, and then even more after getting a graduate degree, prevented her from building up savings.
“I’ve kind of given up on ever owning a home. I don’t think it’s something that I’ve ever really considered,” said Clifford, who has $120,000 in loans. Having debt has “affected relationships … it feels like this embarrassing thing that I feel ashamed to bring up”.
Student debt in the United States has ballooned to over $1.75tn, more than doubling over the last two decades, with over 43 million Americans with debt.
Multiple studies and polls over the years have shown how student debt has directly held many back on major life steps, like owning a home or getting married, and prevents people from building savings that can sustain themselves and their families as they grow older.
A 2022 survey from CNBC and financial company Acorn showed that 81% of people with student loans said they delayed at least one major life milestone because of their debt. In a 2021 poll from the National Association of Realtors, 60% of millennials who do not own a home say that student loan debt delayed any ability to purchase 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 between the ages of 18 and 34 said they would postpone getting married until their debt is 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 period of your life when it means a lot,” said William Elliott III, a professor of social work at the University of Michigan who has researched the relationship between student debt and wealth-building.
Elliott’s research has found that taking out $10,000 in loans is associated with an 18% decrease in the rate of achieving the median net worth. This means those with loans only start building up savings later in life.
“Anyone who knows anything about retirement savings knows the earlier you start, the more money you’re going to have later on. 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 US, where median total assets for a Black household is over five times less than median assets for a White family. Across all racial groups, Black borrowers hold the most student debt, even though they are still underrepresented in higher education. The racial income gap also makes it harder for Black borrowers to pay back their loans, as Black graduates on average earn 15% less than White college graduates, according to the NAACP.
“The racial wealth gap is tremendous between white and Black, and white and Hispanic,” said Nicole Smith, chief economist at Georgetown University’s Center on Education and the Workforce. “Part of it is there’s just no money left over from net income from one generation to the next.”
Smith added: “When passing wealth on to the next generation, it really shows itself up 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 hold 47% more student debt than white men and 27% more debt than white women, according to the NAACP.
The impact that student debt has on the financial future of Americans most clearly showed over the pandemic, as student loan payments and interest have been paused. Research from the Jain Family Institute showed that the three-year payment pause improved the financial wellbeing of borrowers, who saw improvements in their credit scores and a decline in delinquencies. More borrowers were able to get credit cards and auto loans and purchase homes for the first time in years.
“Home ownership is the best way to build wealth, and especially pass down wealth. What we’ve seen in the last decade is that home ownership among young Americans who have increased student debt has declined,” said Eduard Nilaj, a research associate at the Jain Family Institute.
“Since the repayment pause, we actually have seen a change in course where … individuals that are in debt have actually managed to join the housing market as a result of them not having to pay their increasingly large student loans.”
Repayments are set to begin accruing interest again on 1 September, with payments starting again on 1 October. After the supreme court ruling, Biden announced new provisions for when payments start in the fall, but progressive lawmakers and activists have been calling on Biden to fight more aggressively against loans coming back.
The start of payments will be rough 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 couch, so she did not have to sit on the floor. Meanwhile, Clifford has been building up savings.
“I’m not worried about how I’m going to get to next month. Instead of thinking month-to-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 were to try to pay back this loan, I wouldn’t have a fighting chance of ever saving for retirement.”