Student loan repayment is a political hot button. But regardless of your position, we can probably all agree that college loan debt itself places a financial burden on millions of Americans of virtually all adult ages.
You may have put off buying a home or starting a family if you are among the 45 million Americans who pay off college loan debts. If you’re heading towards 60 and still paying for a second degree or loans that you took out to help educate your kids, you may not have saved much for retirement.
And among recent graduates, 92 percent of 2016 college graduates who took out student loans still owe an average of just over $ 30,000, according to the National Center for Education Statistics. The Federal Reserve estimates that the student loan debt at the end of 2020 was $ 1.7 trillion.
Regardless of how much you owe, you are likely to hope that after September 30, 2021, when the loan payments suspension expires, there will be permanent federal relief. But hope isn’t a plan, is it? And the fact that President Joe Biden’s April 28th speech on the union state did not mention college loan forgiveness makes us wonder if a forgiveness proposal is becoming a reality.
Student Loan Debt, All or Reduce $ 50,000?
Obviously, reducing each student loan by $ 50,000 would put a significant strain on the debt, and that plan is still on the table. Eliminating all of this debt would free these millions of citizens from this financial burden and supposedly open them up to new opportunities for financial growth and stability.
And although loan payments were on hold until September, it’s important to remember that they still exist. And if the economy fully returns while the population is receiving vaccinations, loan payments will resume.
What can you do now?
If you owe money on a student loan, think about what you will do when loan forgiveness becomes a reality or when you make the same monthly payment again on October 1st. A few suggestions:
- It was nice to have that extra money in your bank account every month because you didn’t have to make a loan payment. If you didn’t put that money aside to expect payments to start again in the fall, start now. In fact, if you can double the money set aside, do so. You have a great opportunity to repay the loan when the loans return to pre-COVID terms. Obviously, this would be difficult if you had lost a job due to the pandemic.
- If the $ 50,000 payout scenario is successful, your credits may be wiped out. The money you put away for reinvested payments can be invested in a retirement plan that can be used to pay down a home or pay back a credit card. If you owe more than $ 50,000, a large part has still been paid off, and you can add the money you set aside to add to that.
- In the unlikely event that the government clears all student loan debt, all of the money you’ve set aside for student loan payments can be used as some sort of godsend. To keep those savings from disappearing, continue to budget the same amount you paid on student loans and make larger payments on other debts, build your emergency fund, save on a home down payment, or carry it to your retirement account.
What is the problem?
The arguments against any student loan forgiveness proposal are numerous, and the arguments come from both sides of the problem.
There are people who suggest that a $ 50,000 forgiveness would not be enough for the many Americans who have six-figure student loans outstanding.
At the same time, there are people who say it is inappropriate to talk about student loan forgiveness because it punishes all those people who have managed to repay their loans without the benefit of a federal bailout.
The cost of $ 50,000 in debt relief for all applicable cases is estimated at $ 1 trillion. If Biden tried to get an executive order on this scale it would be the most expensive executive order ever and there would likely be legal challenges, and not just from the for-profit companies that made the loans in the first place .
How the plans developed
During his presidential campaign, Biden suggested that he would push for $ 10,000 student loans for all borrowers, and some members of Congress continue to support this. But Senator Elizabeth Warren (D-Mass.) Has led a campaign to provide $ 50,000 in forgiveness to all student loan holders, while Sen. Bernie Sanders (D-Vermont) has a strong support for the forgiveness of all student loan debts.
With the Democratic Party holding a majority in the US House of Representatives and a tiny majority in the US Senate, the atmosphere is best for achieving any of these three goals. However, not all Democrats agree. Biden has asked his education secretary to review the legality of a presidential order to reduce all student loan debt. However, there is a possibility that Congress could pass a law on debt relief.
There are other student loan proposals that focus on specific populations:
Considering the age
Twenty years ago, the Government Accountability Office found that 3 percent of households headed by someone 65 years of age or older have student loan balances, and that percentage has increased in the 20 years since then. In some cases, these loans are likely to come from people returning to school for a second degree or from loans taken out for their children’s education.
There is a proposal that the government could cancel all student debts for anyone aged 65 and over. That would affect roughly 2 million Americans.
As a result of the coronavirus pandemic, there has been a fresh push to pay off student debts for doctors and nurses or other health professionals. It is estimated that there are 1 million healthcare workers who would benefit if their student debts were paid off.
Take income into account
It has been proposed to set a maximum level of income for student loans. Some cases involve those making less than $ 100,000 to $ 125,000 a year, depending on what you read, while others have suggested lending to those making less than $ 50,000 a year.
There are other ways to obtain student loans, depending on your occupation or other factors. The Department of Education provides information on these opportunities, as well as debt relief, for borrowers with permanent disabilities.
The student loan solutions issue is on hold until October 1, and there may or may not be much discussion about college debt by then. This is part of the reason that when you have student debt you need to think about how much that amount will be as that date rolls around. But if you have been able to put those loan payment amounts aside, you are in much better financial shape.
Kent McDill is a seasoned journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.