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Tens of thousands of Vermonters have student debt. The path to relief can be unclear

A woman in a black sweater sits at a desk with a large black monitor and gray laptop. Her hand is on the mouse, and there's a notebook open to a page of notes next to the keyboard.
Zoe McDonald
Vermont Public
Jill Savage works remotely from her Winooski apartment on April 16, 2024.

Lifelong Vermonter Jill Savage, 45, did not follow the traditional path to an undergraduate degree.

She attended Goddard College at 20 and withdrew after three semesters. After working full-time for a little over a decade, she returned in 2011 for a low-residency program, before withdrawing again and returning again when the deferment given to students expired. She completed her degree in 2016, almost two decades after she started.

But in one way her life is pretty typical: like 30 to 40% of undergraduate students, she took out federal student loans. Like all borrowers, her payments were deferred during the pandemic. When that expired last September, Savage consolidated her loans in anticipation of repayment beginning again.

“And then right before my payments were about to be due again, I got a letter from my new loan servicer saying that the Biden-Harris administration had forgiven my student loans in full,” Savage said. “I was ecstatic when I got that. It was incredible.”

Savage was one of 2,390 Vermonters to have her loans forgiven as a result of an administrative change to income-driven repayment plans put in place by the Biden administration last year, according to the White House’s data.

The state of student loan debt in Vermont

Federal student loan debt is an inescapable part of the modern education system. As of last year, 43.2 million borrowers owed $1.6 trillion in federal student loan debt nationwide. That’s counting both the principal (the amount of debt initially borrowed) and interest (a percentage of the principal that accumulates over time and must be paid off before the principal can). While many students also get private loans, they make up less than 10% of student loan debt nationwide.

At last count, federal data show 78,400 Vermonters — that is, people who listed their current mailing address as being in Vermont when the data was collected — held $2.9 billion in student loan debt.

Student loan debt in Vermont is unevenly distributed. Three-fourths of the 78,400 Vermonters with student debt borrowed $40,000 or less. But that’s only 31% of total money borrowed. The remaining 25% of student loan borrowers had debt greater than $40,000; just 2.4% of borrowers held debts over $200,000 — 19% of the total.

President Joe Biden campaigned on student loan forgiveness, and attempted a massive cancellation of debt, which was ultimately blocked by the U.S. Supreme Court. But behind the scenes, a piecemeal approach — combining rulemaking and internal policy changes — has delivered relief to some borrowers.

Earlier this month, the Biden administration announced student loan forgiveness for 277,000 people nationwide — including 490 in Vermont. That brings the total of Vermonters with loans forgiven to 6,490 people since October 2021, according to the White House.

The administration also announced a much larger debt-relief program through federal rulemaking, which will take much longer and will likely be challenged in court.

Combined with the pandemic-era deferment (allowing borrowers to not make payments or see their interest accrue until the policy ended last September), and changes to income-driven repayment plans, some of the thousands of Vermonters who have had or will have their loans forgiven or who are now on more manageable repayment plans, have described the relief they feel — and the urge to get their friends to apply, too.

Caroline Belisle, 24, works as a behavioral interventionist in South Burlington. She graduated college in 2021, during the pandemic deferment. When payments were set to resume last year, she signed up for a SAVE Plan, a new income-driven repayment plan which, at her income level, has her paying $0 per month, while still working towards forgiveness.

“I’d been putting it off for a few months, and it took me a few minutes to do. And it literally saved my life,” Belisle said. “This program isn’t a solution but it’s really, really helpful and I want as many people as possible to get into it, because it’s one of those things that feels too good to be true.”

The 6,490 Vermonters who have had their loans forgiven since October 2021, by the numbers:

SAVE Early loan forgiveness

Who benefitted: 530 Vermonters, $7.6 million forgiven

What it is: The Saving on a Valuable Education or SAVE Plan is an income-driven repayment plan (where payments are based on income and family size) created last year. SAVE Plans offer a variety of benefits, including debt cancellation for people who borrowed $12,000 or less and make 10 years of payments, with an additional year of payments required for each $1,000 borrowed up to 20 years (for undergraduate-only debt) or 25 years (for graduate debt).

Of the 19,700 Vermonters on income-driven repayment plans, 78.17% are on SAVE Plans.

What changed: SAVE Plans debuted in 2023. People who converted to a SAVE Plan and had already made enough payments to meet the forgiveness threshold began to see their loans forgiven starting in February.

Last month, 11 Republican-led states filed suit against the Biden administration to block the program.

Fixes to other income-driven repayment plans

Who benefited: 2,390 Vermonters, $121 million forgiven

What it is: Income-driven repayment plans are repayment plans which base monthly payments on income and family size; for some borrowers, payments can be as low as $0 a month. Borrowers on income-driven repayment plans have their debts forgiven after 20 years (for undergraduate-only debt) or 25 years of payments (for graduate debt).

Just over 25% of Vermonters with student loan debt are on income-driven repayment plans, but they collectively hold 41.4% of student loan debt in the state.

What changed: In the past, a number of conditions made it so that monthly payments did not count towards the total number of payments needed to receive forgiveness. Now, any time spent in repayment on any plan, plus a number of other scenarios, count towards forgiveness. Additionally, all borrowers received credit for the three-year Covid repayment pause. A one-time payment count adjustment applied these new policies to current borrowers.

Note that borrowers with commercially-managed federal loans need to submit an application to have them consolidated by April 30 in order to benefit from the payment count adjustment.

Public Service Loan Forgiveness (PSLF)

Who benefited: 2,850 Vermonters, $198 million forgiven

What it is: Originally passed in 2007, the Public Service Loan Forgiveness (PSLF) program was intended to forgive loans to people who made 10 years of payments while working for local, state, or federal government (including the military) and some non-profit organizations. When the first applicants were finally eligible for forgiveness 10 years later, however, fewer than 1% of applicants had their debts forgiven.

A myriad of issues have plagued the program. Poor communication between servicers (originally FedLoan Servicing, now MOHELA, soon a number of contractors) and the Department of Education, which ultimately approves forgiveness; compounded by poor communication with the public, were both major contributors. The program is still wracked by delays and the subject of a class-action lawsuit.

A temporary waiver in 2021, and subsequent changes to the program, have increased forgiveness rates substantially. In November 2020, the latest count of PSLF results under the Trump administration, 5,690 borrowers had their loans forgiven under PSLF. As of this month, that number is now almost 876,000.

Total and Permanent Disability (TPD)

Who benefited: 720 Vermonters, $22 million forgiven

What it is: The Total and Permanent Disability Discharge program is intended to forgive the loans of people who are unable to make a living for themselves, a threshold called substantial gainful activity.

What’s changed: Previously, people who were classified as totally and permanently disabled by the Social Security Administration or Veterans Affairs had to apply for a TPD discharge separately; understandably a major burden for someone who is unable to work. Under a rule proposed in 2019, and which took effect in 2022, people who are classified as disabled and unable to work by the SSA or VA automatically qualify for TPD discharge. The administration also made it so that recipients don’t have to report their income for three years after receiving a TPD discharge – a 2016 report from the Government Accountability Office showed tens of thousands of people had their loans reinstated after initially being forgiven – 98% of them because they did not submit an annual income verification form.

The new plan

Earlier this month, the Biden administration proposed a new set of rules for student loan forgiveness. As with all things student loans, the changes are complicated; the draft proposal has been published in the Federal Register and the public submit a comment before May 17.

A new part of the proposed rules is interest forgiveness. Currently, some borrowers in income-driven repayment plans don’t pay enough to cover the monthly interest on their loan. As a result, the unpaid interest accrues, or adds up. This process — where a borrower pays what they owe but the interest still increases — is known as negative amortization.

A borrower who makes 20 or 25 years of payments on an income-driven repayment plan (or 10 years in public service) will have their loans forgiven; but if they want to pay off their loan earlier, leave public service before the 10-year period, enter deferment or forbearance or no longer qualify for an income-driven repayment plan, they’ll find a large interest payment is required before they can pay off the principal. That's to say nothing of the psychological stress experienced by borrowers already in rough situations seeing their balance rise. In some cases, unpaid interest can be added to the principal, which is known as interest capitalization — meaning higher interest payments. (Last year, a regulation went into effect limiting the number of situations where this can happen.)

This is an inherent issue with income-driven repayment plans, which were originally designed to help borrowers through tough times, rather than a long-term tool, said Scott Giles, president and CEO of the Vermont Student Assistance Corporation (VSAC). SAVE Plans address this — so long as borrowers make their required payments, any monthly interest they don’t pay off is not added to the loan balance. But borrowers who've seen their interest accrue and capitalize in past years are stuck with that balance.

The proposed rule seeks to fix that, canceling up to $20,000 of accrued interest for all borrowers and canceling all accrued and capitalized interest for borrowers with incomes of $120,000 or less for singles, and $240,000 for married borrowers on income-driven repayment plans.

Additionally, the proposed rule would allow the Department of Education to automatically forgive loans for qualifying borrowers without them needing to apply, as is currently required. The department estimates this would help 2 million borrowers nationwide, but did not have an estimate for Vermont specifically.

Other proposed changes include debt cancellation for people who began repayment 20 or 25 years ago (depending on if they have graduate loans) but who haven’t made the required payments under income-driven repayment plans, for borrowers who went to what the administration calls “low-financial-value programs,” and for borrowers experiencing hardship paying back loans.

The new rule will likely be challenged in court.

‘If this had been a couple of years ago…’

While it is mostly young people who go to college, most people with student loan debt are older. In Vermont, 35% of borrowers are between the ages of 35 and 49. Eight percent of borrowers are over the age of 62. Not all of them borrowed for their own education: For example, for students who take out Parent PLUS loans, parents are counted as borrowers, while their children are recipients.

For borrowers who can’t afford to pay off their debts, or who run into unforeseen circumstances, the debt can linger for decades, limiting their ability to grow their wealth. For Jill Savage, the Goddard College graduate, it made the cancellation somewhat bittersweet.

“It’s kind of conflicting,” Savage said. “I was floored and I’m incredibly grateful, because I wasn’t expecting it. I had sort of followed the path of the administration wanting to do this and then all the challenges and really wasn’t very hopeful that anything would come of it.”

But, she said, every year she was saddled with student loans that impacted her life.

“I feel like if this had been a couple of years ago, it probably would have had a bigger impact on my ability to do more with my life because of it,” she said.

Have questions, comments or tips? Send us a message.

Corey Dockser is Vermont Public’s first data journalist, a role combining programming and journalism to produce stories that would otherwise go unheard. His work ranges from complex interactive visualizations to simple web scraping and data cleaning. Corey graduated from Northeastern University in 2022 with a BS in data science and journalism. He previously worked at The Buffalo News in Buffalo, New York as a Dow Jones News Fund Data Journalism intern, and at The Boston Globe.

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