Forgiving Student Loan Debt Pros And Cons – Student loan debt is often in the news as policymakers debate solutions to rising college costs that sometimes lead to crippling debt. For those with outstanding student loans, such debt can be discharged in two ways: discharge and bankruptcy.

According to the Federal Reserve, as of December 2020, Americans owe a total of $1.71 trillion in student loans. By comparison, Americans owed about $845 billion in student loan debt as of December 2010, meaning that student loan debt has increased by about 102% over the past ten years. [12]

Forgiving Student Loan Debt Pros And Cons

According to the US Department of Education, 42.9 million Americans had outstanding student loan debt at the end of 2020, or about 17% of the US adult population. 75% of students with school loans went to 2- or 4-year colleges, and the remaining 25% also took out loans for higher education. About 6 percent of people with school loan debt owe more than $100,000—this group accounts for about a third of all outstanding student loan debt and typically includes both college and graduate education costs. Approximately 40% leave college with between $20,000 and $100,000 in outstanding student loans. About 25% leave college with less than $20,000 in debt, and 30% leave with no student loan debt. [3] [4]

Student Loan Forgiveness Programs And How To Qualify

The New York Federal Reserve reported that in early 2020, about 11% of student loan debt payments were either late or delinquent (270 or more days). By all indications, that debt, as well as late payments and delinquencies, will continue to rise as college costs outpace average incomes. [5] [6] [7]

By November 2021, the Education Data Initiative estimated that 43.2 million student borrowers owed an average of $39,351 each. [40]

Some or all of the existing student loan obligations to ease the financial pressure on the people and the country. Student debt forgiveness offers range from $10,000 in forgiveness per borrower (which would forgive all debt on accounts held by about 15 million borrowers) to $50,000 per borrower (which would forgive all debt on accounts held by about 36 million borrowers ) to plans that would forgive

Outstanding student loan debt. Each plan will include forgiveness for those with delinquent or delinquent accounts, as well as partial debt forgiveness for many more borrowers. [8]

Student Loan Debt Statistics In 2023

The Wharton School at the University of Pennsylvania estimated that, depending on the details, over ten years, college debt cancellation would cost between $300 billion for a one-time cancellation of $10,000 for borrowers earning less than $125,000 a year and $980 billion for a one-time cancellation of $50,000 per borrower. [43]

. Credit card debt, medical bills, car loans, and even gambling debt can be discharged through bankruptcy, but because of a 1976 federal law, discharging student loan debt is much more difficult. Private student loans are also protected by an exemption in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. According to the U.S. Department of Education, people who file Chapter 7 or Chapter 13 bankruptcy

Have their student loan debt canceled, but only if the court finds there is evidence of “undue hardship.” However, student loan discharge is so difficult and rare that many attorneys advise clients not to try: Less than 0.5% of students discharge their debt through bankruptcy. [9] [10] [11] [12] [13]

In March 2020, at the start of the COVID-19 pandemic, President Trump paused federal student loan payments, interest accruals, and debt collection. Congress voted to keep the pause in place until September 30, 2021, and Trump extended it again until January 2021. President Biden has kept the pause in place with several renewals since taking office. Its most recent freeze, announced on April 6, 2022, will expire on August 31, 2022. While some disagree with the continued freeze on payments, interest and collections, others question why federal student loan debt cannot be canceled , if the federal government can go without payments for almost three years. [41]

Debt Tackling Strategies & Payment Plan Options

On August 24, 2022, President Biden announced a brief loan freeze until December 31, 2022, as well as cancellation of “up to $20,000 of federal student loan debt for Pell Grant recipients and up to $10,000 for other qualified borrowers.” The White House said about 43 million borrowers would be eligible for cancellation, with 20 million borrowers eligible to have their debt completely canceled. The debt cancellation program has been mired in lawsuits since its announcement, leading to the program being suspended from the court. On December 1, 2022, the US Supreme Court indicated it would hear the case in February 2023, leaving the stay in place. On June 30, 2023, the US Supreme Court struck down the student loan program by a 6-3 vote provided that federal law does not allow the US Department of Education to cancel such student loans.[42] [48] [49] [50]

The Wharton School at the University of Pennsylvania estimated that the debt cancellation portion of Biden’s August 2022 plan would cost up to $519 billion, with other components such as income-based repayment plans adding additional costs. The Congressional Budget Office (CBO) estimated that the plan would cost $400 billion over 30 years. [44] [47]

Pro 1 student loan debt is slowing the national economy. Forgiveness will boost the economy and benefit everyone. Student loan debt slows new business growth and holds back consumer spending. A study by the Federal Reserve Bank of Philadelphia found a “significant and economically meaningful negative correlation” between student loan debt and the declining rate of new small businesses. Such debt can make it difficult to get a business (or other) loan, so people with student loan debt are less likely to be able to open a business. And the snowball effect from there: fewer small businesses means fewer jobs and less economic output and consumer spending, which in turn means lower national income and slower economic growth for the country. [14] [15] [15] As William Foster, Vice President, Senior Credit Officer explained, “U.S. real GDP could rise by an average of $86 billion to $108 billion a year, [which] is quite a bit… That’s if you have full loan forgiveness. Although Foster stated that full forgiveness is not necessary to see a positive impact. [16] President Joe Biden, when announcing his loan cancellation program, stated, “I ran for office to grow the economy from the bottom up and down the middle, because when we do that, everybody does better, everybody does good. The rich are doing very well, the poor have a way up, and the middle class has room to breathe. And it will help America win the economic competition of the 21st century… That is the subject of today’s announcement. It’s about opportunity. It’s about giving people a fair chance. It’s about one word that defines America: opportunity. It’s all about providing opportunities.” [46] When everyone can’t participate in the economy, the whole economy suffers. Read more

Pro 2 student loan debt has disproportionately hurt black students. Forgiveness can help correct racial inequality. Black college students borrow more than their white counterparts because of family income, generational wealth, parental education, and the types of colleges attended. [17] According to Judith Scott-Clayton, a senior fellow at Columbia University’s Community College Research Center, interest rates and college loans leave black graduates with twice as much debt as white graduates, nearly $53,000 four years after graduation. Scott-Clayton also noted that blacks defaulted on their student loans at a rate of 21 percent, while whites defaulted at 4 percent. The disparity, she explains, is the result of most black students who failed attending predatory for-profit colleges that have generally higher failure rates for all students. [17] Ashley Harrington, federal director of advocacy and senior counsel at the Center for Responsible Lending, explained the catch-22 that students of color often fall into: “The student debt crisis is absolutely a matter of racial justice. For brown and black people, they often have to get more education to get the same wages and positions that white people can get with less education and that means how do they do it? They have to take on more debt… [Then debt] gets in the way of building wealth. It’s something that affects not just individuals, but their families, their communities.” [18] An August 2020 Roosevelt Institute study concluded, “while individual white borrowers in the middle position earn the most in absolute dollars of student debt cancellation, the relative gains for black borrowers are much larger, and the majority of black borrowers mean that black wealth overall will experience more growth as a result. Given the many advantages that wealth provides in the contemporary U.S. context, the significant increase in black net worth is a very important positive contribution of student debt cancellation that has a potentially transformative positive impact on black families as a whole.” The assistance provided from student loan debt forgiveness exceeds the simple dollar amounts.[19] Read more

Private Student Loan Forgiveness: What Does It Mean?

Student loan debt Pro 3 has infantilized a generation or more of Americans, preventing them from reaching milestones like getting married, buying a house, or saving for retirement. Relief from such debt would help foster a healthier, more productive,

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