How student debt relief will affect Iowans

In November 2014, Kimberley Boggus applied for a communications job with Des Moines-based Planned Parenthood and was swiftly rejected — because she didn’t have a college degree.

“I got an interview, and it was a hard stop,” Boggus, now 42, told The Gazette.

Two months later, Boggus enrolled at Iowa State University to pursue a degree in communications. She already had credits from Omaha colleges and graduated in 2017 — with tens of thousands of dollars in student loans.

Despite qualifying for Pell grants and federal loans as a student, and making regular loan payments since she graduated, she still owes “about $85,000.”

So when U.S. President Joe Biden this week announced a student loan relief plan canceling $10,000 in student debt for most borrowers and up to $20,000 for Pell Grant recipients — undergraduates who show exceptional financial need — Boggus was thrilled.

“I’m really excited about this,” she said, acknowledging some people across the political sphere aren’t and think the canceled amounts are either too little or too much.

“But I'm truly grateful,” Boggus said. “When people think $20,000 isn’t a lot, out of my $85,000, that’s a lot for me.”

Who will benefit?

While questions abound on who is eligible, what loans qualify, how borrowers can sign up for relief and when the erasure will materialize, Biden said in his announcement that 95 percent of borrowers would benefit, or about 43 million people.

Of that total, more than 60 percent are Pell Grant recipients — meaning they could qualify for the higher $20,000 relief. About 45 percent of all those holding student debt — nearly 20 million — would have their debt erased completely.

In Iowa, as many as 450,000 individuals could be affected by the news, according to Iowa College Aid — the state’s student financial aid agency for 60 years.

The average federal and private student loan debt in Iowa was $29,900 in 2021, Iowa College Aid reported, citing FRBNY Consumer Credit Panel/Equifax data.

That suggests the average Iowan with student loan debt will see some relief so long as their annual income doesn’t exceed $125,000 — or $250,000 for a couple.

Student Loan Hero — a LendingTree subsidiary focused on helping students pay off debt — recently studied how $10,000 in loan forgiveness would impact the country and found 7.3 percent of all borrowers owe more than $100,000.

In a state comparison, Iowa had the second lowest percent of borrowers owing at least $100,000 — at 5.1 percent, or 21,041. Only North Dakota had a lower percentage at 4.3 percent. Washington, D.C., and Maryland had the highest percentages at 16 percent and 11 percent, respectively, according to the Student Loan Hero study.

Regarding the percent of borrowers who’ll have their debt eliminated under the relief plan, Iowa ranks 11th, with 35 percent. Wyoming reports the highest at 38 percent, and Washington, D.C., reports the lowest at 25 percent, according to the study.

Indebted Iowans

In the days since Biden’s announcement, Iowa College Aid has received inquiries from students across the state — questions the agency has directed to Federal Student Aid.

Some of the interest is coming not just from graduates but from current students — given the plan encompasses loans disbursed through July 1, 2022.

Iowa College Aid reported 202,645 students were enrolled across the state’s public, private, and community colleges last fall. A statewide student debt report showed 56 percent of the 10,183 graduates from Iowa’s public universities left with some debt in 2021 — averaging $28,522 per person.

About 71 percent of the 5,112 graduates from private colleges and universities in Iowa left with debt last year, averaging $32,529 per graduate.

Nearly half of Iowa’s 7,460 community college graduates left with debt last year, at an average of $13,207 each.

Still, the overall percent of Iowans who graduate with student loan debt has been declining.

Across Iowa’s public universities, specifically, the percent of Iowa residents who borrow has been dropping while the percent of non-residents who borrow has jumped.

Where about half of Iowa State University’s non-residents borrowed in the 2016-17 school year — reporting an average debt load of $30,105 — 57 percent did so in the 2020-21 school year, reporting an average debt load of $34,020.

The University of Iowa reported its percent of non-resident borrowers jumped from 39 percent to 42 percent over that five-year period, while its resident borrower percentage dropped from 59 percent to 55 percent.

Iowa’s regent university three-year student debt default rate for 2018 graduates was between 2.2 percent and 2.8 percent — below the 4.6 percent for Iowa’s four-year private colleges; 12 percent for Iowa’s community colleges; and the 7.3 percent U.S. national average, according to Board of Regents documents.

Fallout

Iowa College Aid officials said they can’t speculate on how Biden’s relief announcement might impact future borrowing — although the plan includes changes for future payments.

For example, future borrowers will pay no more than 5 percent of their discretionary income monthly on undergraduate loans, down from 10 percent in most income-driven repayment plans.

As to how shaving off debt for millions of Americans might impact the broader economy, ISU economics professor Peter Orazem said research has tied student debt to slower consumption, or consumer spending.

“My own sense is that it matters more for the individual than it does for the overall economy,” he said. “On the other hand, the size of this particular program is relatively large. So I think that its impact is likely to be larger than the relatively slow accumulation of student debt over time.”

Should the debt relief compel more spending, however, the plan could spell trouble for the economy, Orazem said.

“More spending is fine if you have production on the other side,” he said. “But more spending on top of no production, this is why we have this mess to begin with.”

Addressing rising inflation, Orazem said, “we threw a whole bunch of dollars on to the consumer side of the economy, and, oh, by the way, we don't want you to work.”

“And so you had a huge increase in consumer dollars with no production on the other side, and as a consequence, they just bid up the price of existing goods,” he said.

The impact of the student debt relief might depend on how quickly it rolls out, according to Orazem, who warned the relief could create “upward consumer pressure.”

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com