Student loan forgiveness could be key to better job for those without college degree

For decades, Stephanie Whitby’s go-to solution for making more money fast was to pick up extra hours waiting tables at restaurants.

Even when she had a full-time job in state government in Lansing, she waited tables on the side. Sometimes, she might make an extra $400 or even $700 on a weekend. She even made it through much of the pandemic by delivering food for DoorDash.

As prices on everything from gas to groceries soared, though, she's seeing blue collar families in the Lansing area cutting back to make ends meet. Customers are still tipping, she said, but fewer tables are filling up and turning over as people eat out less often or they're ordering more affordable options on the menu.

"Inflation — this is going to be the new normal," Whitby said. "I have to always look at how I can reduce my costs and be creative about it."

Will student loan forgiveness offer a way to get a diploma?

Whitby wasted no time when it came to applying for a chance to see up to one-third of her daunting federal student loan debt forgiven. She filled out the form online on Oct. 17, the very day the Biden administration plan officially opened to borrowers.

She says the whole thing probably took her about five minutes to fill out.

A graduate of the former Mackenzie High School in Detroit, Whitby, 48, built up about $60,000 in federal student loan debt trying to get a college diploma.

She's got the debt but no degree yet.

As the legal battle intensifies, though, she and other borrowers face far more confusion about how much debt, if any, will be forgiven.

She started part time as an adult in the winter of 2014 to obtain a bachelor's degree in business administration at the Lansing campus of Davenport University. She attended Wayne County Community College in the 1990s but paid out of pocket then.

A large amount of her student loan debt, Whitby said, went to cover tuition, books and fees at Davenport and some of the borrowed money covered living expenses, as allowed. She worked as a waitress while attending Davenport.

She estimates that she has about 1½ years to go to finish and will need to find a better job and take on more debt to get the job done.

These days, she is always trying to find creative avenues to boost her income, cut costs and reduce her debt.

"I need to look at ways to stop the bleeding," said Whitby, who admits she has had financial challenges for about the past 10 years.

Many don't have the degree to get a better job

For many borrowers, the federal program for student loan forgiveness isn't a way out of debt entirely. Some just need a way to go forward.

More student loan borrowers than you might imagine don't have that important college diploma, which can be the ticket to a better-paying job or career. A better job, of course, can make it easier to pay down those student loans.

Anywhere from about 33% to 50% or more of those who have student loan debt do not have a four-year degree, according to various estimates.

U.S. Sen. Elizabeth Warren, D-Mass., has put the number around 40%, but the White House pegs it at nearly one-third, according to a U.S. Education Department analysis of a recent cohort of undergraduates. Many of these students could not complete their degree because the cost of attendance was too high, according to the White House.

More:Biden student loan forgiveness: Everything to know

Mark Kantrowitz, a student loan expert and author of "Who Graduates from College? Who Doesn't?," said he would estimate the number could be as high as half of borrowers. Some drop out because of financial difficulties. Some don't have the support of parents who take on debt of their own or tap into savings to cover college bills. Some have seen their grades fall far enough that they're no longer eligible for federal financial aid.

Kantrowitz noted that students who are not making what's called "Satisfactory Academic Progress" are ineligible for more federal student aid. To qualify for more aid, he said, a student must maintain at least a 2.0 grade point average on a 4.0 scale. They also need to be taking and passing enough classes to be on track to graduate within 150% of the normal timeframe, such as six years to obtain a four-year degree.

Borrowers who are in default are not eligible for further federal student aid — so if they went to school, stopped but didn't keep up with payments, they can't borrow more money to finish school.

"When a borrower is ineligible for further federal education loans, their main option is borrowing private student loans," Kantrowitz said.

Private student loan debt often comes with a higher price tag and interest rate, especially for those with low credit scores. And there is no possibility for loan forgiveness.

If borrowers are able to see their federal debt forgiven, even part of the debt, they could find it easier to afford to repay their remaining debt, Kantrowitz said.

For some, Kantrowitz said, forgiving the debt may restore eligibility for future federal student loans by reducing their loan balance below the aggregate limits and they can go back to school to finish a degree.

How debt forgiveness will help many

Wide-sweeping student loan forgiveness can help many move forward — maybe finishing their degree, maybe getting their debt down enough to start a family or maybe if they have a steady job, reducing their debt enough to help them put together a down payment and qualify for a more affordable mortgage to buy a modest home. Lenders take into account overall debt — including student loans — in relation to your income when considering you for a mortgage.

Already, about 26 million borrowers have applied to see their federal student loans forgiven under a massive new program introduced by President Joe Biden in late August.

Among borrowers who are no longer in school, nearly 90% of relief dollars will go to those earning less than $75,000 a year, according to the Education Department.

Some borrowers who had Pell Grants in college will see up to $20,000 in federal student loans forgiven; others will see up to $10,000 in debt forgiven.

Income limits apply — an individual's income must be less than $125,000. The income for married couples must be less than $250,000. The income being used is for 2020 or 2021. The income requirements are based on your adjusted gross income, which tends to be lower than your total income.

The program gave borrowers until Dec. 31, 2023, to apply.

More:Student loan debt relief scammers are already tricking people: What to watch for

Now, federal student loan debt relief has been blocked further.

On Friday, the U.S. Department of Education website stated that the department is no longer accepting applications. The site noted: "Courts have issued orders blocking our student debt relief program."

The Education Department is seeking to overturn the court orders. "If you've already applied," the Studentaid.gov website states, "we'll hold your application."

Late Thursday night, a U.S. District Court in Texas issued an injunction that blocked Biden's effort to forgive $400 billion in federal student loan debt on the grounds that the president lacks such authority. The U.S. Justice Department is appealing.

It's a wait-and-see situation. Unfortunately, much remains unknown for borrowers in early November, just two months away from when the payment pause on student loans is set to end Dec. 31.

More:US judge in Texas blocks President Biden's student debt forgiveness plan

More than $50 billion in federal student loan debt is held by 1.4 million borrowers in Michigan, according to data compiled by the Education Data Initiative. That data is for outstanding principal and interest balances. The average balance per borrower in Michigan is $36,116.

About 14% of the state's residents have student loan debt, according to that data.

About 21.6% of those Michigan borrowers owe anywhere from $20,000 to $40,000. And about 2% owe more than $200,000.

Ideally, your college debt at graduation should be below the annual salary you'd expect to get in your field once you graduate.

More than 43 million people have federal student loan debt in the U.S. The average borrower has about $37,787, according to data compiled by the Education Data Initiative. The outstanding federal loan balance is about $1.6 trillion.

What about those in default?

Some borrowers without degrees — and with low-paying jobs — stop paying their student loan bills because they're juggling other bills, like rent and groceries.

About 16% of borrowers are in default, according to the White House. That includes nearly a third of senior citizens with student debt. That can result in the government garnishing a borrower’s wages, reducing part of a borrower's Social Security benefits to cover defaulted federal student debt or lowering a borrower’s credit score.

A separate Fresh Start initiative through the U.S. Department of Education was announced in April to help eligible borrowers who are in default. The program, which began in the fall, will continue through one year after the payment pause ends. Borrowers should update their contact information with their loan servicers to have an opportunity to get out of default status and, if they want to be able to return to school.

More:Student debt forgiveness curveball means some borrowers won't be eligible

How relief may help those without degrees

Some borrowers who left school before graduating but aren't carrying a great deal of debt could see immediate relief.

"For borrowers who have left school without a degree, many have very low balances and will see their debts completely eliminated," said Persis S. Yu, deputy executive director for the nonprofit Student Borrower Protection Center.

Those who have left school without a degree often end up in financial distress and as a group, they are disproportionately in default and vulnerable to the government's harsh collection practices, Yu said.

"For many, this will allow them to keep vital resources — like wages, the earned income tax credit, Social Security benefits — that are critical to keeping food on the table," she said.

Whitby still doesn't have that college degree, which might help her land a good-paying job. She last attended school in 2019 and she is unable to access more federal student loans because she's reached a maximum limit for federal loans. She'd have to take on private student loans, which cost more, and she doesn't want to do that.

Undergraduates can borrow up to $57,500 in Federal Direct Stafford loans in total to seek a degree; no more than $23,000 can be in subsidized loans, which do not accrue interest while you are in school at least half-time or during deferment periods.

Many financial troubles don't start or stop with student debt

The last 10 years or so haven't been the best for Whitby's financial picture — and student loan forgiveness could be one of the necessary boosts to get things back on track, possibly making it easier for her to earn a bachelor's degree.

Even if $20,000 in debt is forgiven, as she is hoping will be, she's still trying to figure out how to repay $40,000 in federal student loans. She might have to take on more debt before she can finish that degree. But, theoretically, she could borrow more in federal student loans to finish her degree if $20,000 is forgiven.

Whitby is hoping that debt relief could help her get back into the classroom. She knows about the legal delays and challenges to Biden's forgiveness program. But in an interview Nov. 4, before the setback Thursday in the federal court in Texas, she remained hopeful that once a huge program gets launched it will be hard to drop without offering help to millions of borrowers.

Looking back, Whitby says she once had an opportunity for a full-ride scholarship in communications when she was younger at Wayne State University in Detroit. She had another vision and decided against it because she didn't want to follow a corporate path. Her grandmother was upset when she turned that opportunity down.

She was so focused on wanting to help people and did get to do some of that several years ago when she was working for Gov. Jennifer Granholm's administration as a mailroom manager and liaison for addressing citizen complaints and concerns. She made about $38,000 a year in that job — and she made even more on top of that working extra jobs as a waitress.

But things fell off track after Granholm left office and Whitby found it hard to replicate that 9-to-5 paycheck.

Whitby saw a condo in Lansing go into foreclosure a few years after that government job ended and regrets that she didn't know how to manage her money well while she was working. She had a hard time finding other work, as all she had was a high school diploma.

During the early days of the pandemic, she lost a job that paid $15 an hour as a manager in a hotel in East Lansing, as business travel and conferences collapsed in early 2020. "By late February, they were laying people off at the hotel," she said.

Inflation is the latest headache, one that she expects is likely to be a long-lasting game changer.

She once thought when studying business as an adult that the hospitality industry would offer her a good future, but now she's doubting that because she thinks travel will be a luxury that many won't be able to afford. She'd still like to work for a nonprofit.

Over 30 years, Whitby has been able to pick up hours as a waitress — even when she had a good job in state government — to make extra money. She's still finding work but it's far harder to wait tables to make good money.

She worked four hours one Sunday at the Old Chicago Pizza + Taproom in Okemos and made $130 in tips when in the past she might have made $225 or so during a similar shift. Her wages are $3.75 an hour plus tips.

People are just being more careful about how they spend their money.

Whitby isn't eating out as much lately herself and when she does, she's going for the deals, the $6 Big Box at Popeyes, the Happy Hour snacks at Old Chicago, the kid's meals.

She's been working the past year through GreenPath Financial Wellness to pay down her credit card debt, taking it down so far from about $2,500 to about $1,500 now.

As part of a debt management plan at GreenPath, she's seen some credit card rates go down to 0%. Some credit card rates were dropped to around 10% from 23% or higher. She also sought help from GreenPath to address other loans, as well.

How do you find a way to pay to finish a degree?

The federal student loan forgiveness program will reduce the financial burden facing many students and graduates, said Leah Aalderink, executive director of student financial services for Davenport University.

"We have experienced students leaving or turning to private lenders when they have exhausted their Federal Student Loan eligibility and this relief could open the door for them to return to complete their program," Aalderink said in a statement to the Free Press.

The private Grand Rapids-based Davenport University lists tuition at $21,240 for two semesters with 12 credits each semester for full-time students taking courses in the classroom. The nonprofit university has about 5,200 students. It offers classes online and has eight campuses statewide including Lansing, downtown Detroit and Warren.

The median federal loan debt among borrowers who completed their undergraduate degree at Davenport, according to U.S. News and World Report, is $26,512. The median monthly federal loan payment for student federal loan borrowers who graduated — if it were repaid over 10 years at 5.05% interest — is $265.

Whitby is reviewing various options for figuring out what's next for her, including ways to keep her education costs down.

Maybe, she says, she'll apply for a job at Biggby Coffee to get a reduced rate for her tuition, as part of a partnership that Davenport has with Biggby for its employees. Through its partnership with Biggby, the school offers Biggby employees various benefits, including up to $7,000 toward tuition for most undergraduate and graduate degree programs and a renewable scholarship that applies toward six classes or 22 credit hours per year.

Maybe, she'll spot and land a job in state government. If she got a job with the state again, she might be able to get a discount. All state of Michigan employees receive a 50% discount for attending Davenport University; their spouses and children receive a 25% discount.

Maybe something else might work out. Davenport has partnerships with other companies, too.

"It's so many moving parts," Whitby said. "What can I use in my arsenal to reduce my debt?

"When you have so many hiccups like me, you have to learn to adjust to it.”

Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.

This article originally appeared on Detroit Free Press: Student loan relief could be key for those with big bills, no degree