Borrowers are prevented from repaying their initial debts due to high interest rates on student loans.
Insider spoke with two borrowers dealing with student debt that is "crippling", largely because of interest.
Both of them paid off their original debts in a similar amount, but owe thousands more.
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Alexandria Mavin was told by her high school teachers that there was a way to achieve the American Dream. She would be able to get the job if she went to college, got a degree, and got an office position. As a down payment, she graduated from college with $117,000 of student debt.
She is now 32 and a property manager. Although she has paid $70,000 back, $98,000 remains from her undergraduate education. She says she regrets not pursuing an education.
Mavin stated to Insider that although I have paid off most of my loans, the full amount is still due. It's a never-ending circle.
Mavin is referring to interest. Many borrowers struggle to keep up with their payments and eliminate their debt. Due to the fact that interest rates are increasing each year, student debt is at $1.7 trillion. Borrowers who don't pay their debt on time will still face high interest rates. Their debt will remain at the same level as what they borrowed initially or higher.
Insider reported that banks raised interest rates on student loans after President Lyndon B. Johnson signed the Higher Education Act in 1965. This system allowed lenders to make more money, while pushing more borrowers into default and further into debt. Many borrowers feel trapped by it.
Alexandria Mavin. Alexandria Mavin
Four servicers own Mavin's student loan, but only FedLoan Servicing was included during the federal pause on student loan payments and interest. Mavin claimed that being free of interest on any one of her student loans saved her $377 per month. This money she used to save and paid off her hospital bills after giving birth to the pandemic.
Mavin stated, "It just proves how without student loans I can afford to live,"
"I am financially paralyzed due to crippling debt"
Daniel Tapia, 41 years old, graduated 10 years ago with a bachelor's in dental hygiene. He was the first person in his family to earn this degree. He told Insider that he has been living in "crappy apartments" and driving used cars since then. His mom moved in with him because of the 10 year-old student debt.
Tapia stated, "I am financially paralyzed due to crippling debt and can't get ahead with my life." "Murdered in the student-loan sector."
Daniel Tapia. Daniel Tapia
Tapia borrowed $60,000 to pay for his bachelor's degree. Tapia also had a 9% interest-rate private student loan. His student debt load is currently just below $86,000. Tapia has $22,000 of government owned student loans. This was even after a decade of monthly payments.
Tapia stated, "What I don’t get is that if I take out a certain amount and have already paid that amount, but I still owe more than what I originally owed, it’s just nuts." It's amazing to me that the total amount isn't decreasing. It isn't going away.
Insider reported recently that while federal student loan payments were on pause due to the pandemic, many borrowers who made at most one payment were "underwater." This means they had not $1 less debt than their original balances. Some are still stuck in an endless cycle.
Many students believe that student-debt cancellation can be their only hope of escape.
Mavin stated that even though President Joe Biden advocated for cancelling $10,000 of student debt per borrower, it wouldn't be "a drop in a bucket." She stated that the alternative plan by Senator Elizabeth Warren of Massachusetts and Senate Majority Leader Chuck Schumer, which would cancel $50,000 per borrower, would be a tremendous help.
Biden's American Rescue Plan has helped some colleges cancel student loans and institutional debt. However, it has not been possible to forgive large amounts of student debt.
Biden asked the Education and Justice Departments for a review of his executive authority to cancel $50,000. However, months have passed and no word has been given on where these reviews are.
Mavin stated that despite having paid back the majority of my loan, I was still being cheated by interest. However, it is the banks who are making the most. "I fear it will be a never-ending cycle in which I cannot give my daughter the life she wants and I can’t give myself the life that I want."