Before Biden adopts student loan forgiveness, it has to happen first
Before President Joe Biden enacts a large-scale student loan forgiveness, this has to happen first.
Here’s what you need to know – and what it means for your student loans.
Prepare for the end of student loan relief. As of January 31, 2022, the temporary forbearance of student loans due to the Covid-19 pandemic will cease and federal student loan payments will resume the next day with your usual interest rate. For almost two years, student loan borrowers have not been required to make federal student loan repayments. Federal student loans also have a 0% interest rate since March 2020, which will cause borrowers to write off $ 110 billion in student loans. With the end of this student loan relief, many student loan borrowers are wondering if Biden will embrace full-scale student loan cancellation and write off everyone’s student loan debt. (These borrowers could then get a student loan discount). Before that happens, however, there are several considerations that must be evaluated first. Let’s explore.
Student loan cancellation: why borrowers want student loan forgiveness
The argument for canceling the student loan looks like this: University is extremely expensive. Student loans, like any consumer debt, make college more expensive. Today, according to the latest student debt statistics, 45 million student borrowers collectively owe more than $ 1.7 trillion in student debt. Today, student loans are the second highest category of consumer debt, just behind mortgage debt. Supporters say canceling student loans will stimulate the economy, reduce disparities, free a generation from a heavy debt burden, and provide free cash to get married, raise a family, buy a house, save for retirement. or start a business. (Here’s who qualifies for the student loan waiver right now). That’s why several members of Congress, including Senate Majority Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) have called for the large-scale cancellation of student loans. (How to Apply for a Limited Student Loan Discount).
The case against the cancellation of the student loan
Before there is a possible large-scale student loan cancellation, opponents want Biden, the U.S. Department of Education, and Congress to understand the full implications of any massive student loan cancellation decisions. While supporters believe that canceling student loans on a large scale is an obvious and long overdue political decision to be passed yesterday, opponents say canceling student loans, in simple terms, is bad public policy. . Here are some of the arguments raised by opponents of the massive student loan cancellation:
Most people don’t have a student loan
Student loans are not as popular as the headlines suggest. There are approximately 250 million American adults. Of this group, only 45 million people have student loans. This means that about 80% of American adults don’t have student loans, haven’t gone to college, or have already paid them off. Thus, any plans to cancel student loans would not directly benefit most Americans. Instead, the cancellation of student loans would target around 20% of the adult population. (Do 3 things for your student loans now).
Half of student loan debt is for graduate studies
Here’s a fact: almost half of student loan debt is for graduate studies. Think: law school, medical school, dental school, MBA, and masters. This is not to say that these student loan borrowers should not receive student loan relief. However, borrowers who have obtained these degrees tend to embrace professions that generate substantial income.
Student loans benefit borrowers
Paying off debt can be frustrating and, for many, costly. That said, student loans are the responsibility, and it was the emphasis on this responsibility that led to the discussion of student loan cancellation. However, student loan borrowers also get a plus of this student loan which is college education. This college education. on average, generates more income over life than a high school diploma alone. So focusing only on the student loan – not the higher income – doesn’t describe the full picture. (What’s the next step for student loan cancellation).
People who have paid off student loans get no student loan forgiveness
No blanket proposal would compensate or otherwise reward student loan borrowers who have properly repaid their student loans. These former borrowers may have held three jobs, sacrificed raising a family or saving for retirement, and struggled financially while meeting their financial obligations. If a large-scale student loan forgiveness occurs, a question will be whether borrowers who have recently paid off student loans will benefit financially.
Student loan cancellation is not the best incentive
If there is a large-scale student loan forgiveness, student borrowers will not get the money. On the contrary, some or all of their student loans could be repaid. This is a transaction between the federal government and a student loan manager. The borrower will not receive any money, so there is no direct stimulus. That said, if their student loans are paid off, borrowers would have additional monthly cash to spend or invest. Opponents also question whether direct stimulus controls would be a better use of $ 400 billion or $ 1,000 billion in spending. Likewise, total credit card debt, total auto debt, and total mortgage debt also each exceed $ 1,000 billion. Should these borrowers also receive relief?
Student loan cancellation is expensive
Student loan cancellation is expensive. For example, Biden’s plan to write off up to $ 10,000 in student loans for student borrowers could cost up to $ 400 billion. Schumer and Warren’s plan to write off up to $ 50,000 in student debt could cost $ 1,000 billion.
Student loan cancellation does not solve the cost of higher education
Student loan cancellation should be a one-time event. If you borrow student loans the day after a massive cancellation, you’re out of luck. Canceling student loans would certainly benefit existing student loan borrowers, but it does not solve the underlying problem – the exorbitant cost of a university education. Lower tuition fees and a more affordable college (permanently) would benefit more people.
What this means for your student loans
Will your student loans be canceled? There does not appear to be a clear path to full scale student loan forgiveness. While Biden can cancel anyone’s student loans, that is less likely to happen. Instead, the Department of Education focused on targeted student loan cancellation for specific student loan borrowers. Biden has now canceled $ 11.5 billion in student loans this year. This includes the cancellation of student loans for government officials, borrowers misled by their college or university, and borrowers with total and permanent disabilities. The Department of Education recently announced that $ 2 billion in student loans will be canceled in a matter of weeks. While more student debt is being written off, it likely won’t happen until the temporary forbearance on student loans expires on January 31. Opponents of student loan cancellations want policymakers to consider both the policy goals and the impact of the massive student loan cancellation before any decision is made. As Washington debates the future of student loan cancellation, the best thing to do is have a student loan repayment strategy. Understand all of your options. Here are some popular ways to pay off student loans faster: