Student debt but no degree often equals low credit score

President Biden’s recent decision to cancel a collective hundreds of billions of dollars of debt for student borrowers is expected to wipe out balances for roughly 20 million people across the country. But it still only reduces the overall amount of student debt in the U.S. by a fraction—a total that amounts to roughly $1.75 trillion. And while there are some concerns over how Biden’s plan will affect the overall economy as it relates to inflation, specifically, it may deliver some much-needed financial relief for many households.

Given increasing prices and the looming prospect of a recession, millions of Americans are feeling a heightened sense of financial insecurity, too, according to the most recent report from Elevate, an online credit provider. The report, produced by the company’s internal Center for the New Middle Class, and which surveys more than 22,000 respondents monthly, finds that financial security is currently the highest it has been for “prime” consumers (those with credit scores of 700 or higher) since 2018, and non-prime (those with scores below 700) alike. Per the data, 19% of “prime” consumers feel less financially secure than they did a year ago, and 37% of non-prime consumers do as well.

In addition to feelings of financial security trending up, so are household expenses among both groups. Household income, however, is trending down. All told, the data makes it clear that Americans are feeling a financial pinch much more so than a year ago.

Households with student loan debt, too, are likely feeling that pinch more intensely than those who do not, says Jonathan Walker, executive director of the Center for the New Middle Class. “If you have student loans, you’re far more likely to be borrowing money in other ways. It’s an indication of just how fragile many people’s finances have become.” Because of that, Walker says that he thinks Biden’s recent move on student loan debt will be helpful to a lot of people, even if the administration has received mixed messages among those who support it, and those who call it a “handout.”

Walker also points to another critical aspect of the student loan story that often flies under the radar: There are millions of Americans who have student loan debt, who did not earn a degree. “You hear a lot of people talking about whether this is a wealth transfer to people who have college degrees, and the reality is that there’s a huge percentage of people who don’t get a degree,” he says.

Among non-prime consumers with student debt, Walker says, 44% did not earn a degree, and among prime consumers, the figure is 25%. “One of the challenges is that people are trying out college, it’s not working out, they’re taking on debt, and seeing none of the benefits from an improved income that comes with a degree.”

Government data shows that the graduation rate for students earning a bachelor’s degree at public, private, and non-profit institutions is only 64%. So, more than one-third of students entering four-year colleges presumably leave with debt, but no degree, further stymieing their earning abilities.
It’s these people, Walker says, that may see the biggest benefit from the Biden administration’s plan.

“It’s an imperfect policy, but for good or for ill, it’s not really benefiting the dentist making hundreds of thousands of dollars,” Walker says. “The data that we have clearly indicates that this isn’t just a popular handout, and that there’s some real impact to student loan balances, and what it’s doing to people’s finances.”

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