The past year has hit us hard as no one could’ve ever imagined the world becoming the place it is today. While we have started to wear masks and practice social distancing, around 4 million students still graduate college each year. It’s no secret that you need to spend the big bucks to get yourself educated and often this money is being borrowed. Whether you are a student, a recent graduate, or have been in the labor market for a while, both the Covid-19 pandemic and studying have left their mark on your wallet.
How serious is the situation?
In late 2020, it was estimated that Americans owed more than $1.7 trillion in student debt for the first time in history. This amount is nearly 4% higher compared to the year before. It is more concerning that since the 2010s, the US student debt has increased approximately 102%. As you probably have noticed, student loan debt has become a fierce topic for many Americans. According to Federal Student Aid, outstanding student loan debt is held by nearly 43 million people. This number is not equally divided between all the people. It has been pointed out that one-third of all student loan debt is owed by only 6% of borrowers, typically by students who did Masters and Doctoral degrees. On this date, student loan debt has already become bigger than credit card debt and is a huge challenge facing the country. Because of this, the future skies seem rather cloudy for most of us.
Delays in payment
Since the start of the pandemic, lawmakers have proposed several student debt relief policies. In March 2020, the CARES Act was put into place which paused all federal student loan payments. As the situation hasn’t improved, the Act got extended in January 2021. President Biden’s executive order extended the student loan payment freeze for eight more months, at least until October 2021. This gives 42 million student loan borrowers a break from making their monthly payments and accruing interest during this time.
But will this be enough? Many of us were already struggling with our student loan payments prior to the pandemic. Even the year before, we experienced record highs in job losses. What else could be done?
Forgiving student debt
Student loan forgiveness sounds like a dream for many of us, especially since the newly-elected President Joe Biden suggested some form of federal student loan forgiveness. Another strategy could be a debt restructuring. This would mean that borrowers with high-interest rates would be able to refinance at lower rates. Yet all the scenarios are still to be confirmed.
Up to $50,000?
It has been brought to our attention that the amount of student loan forgiveness could be either $10,000 or $50,000. What would these different amounts mean? If all federal student loan borrowers got $10,000 of their debt forgiven, the country’s outstanding education debt would fall to around $1.3 trillion, from $1.7 trillion. Meaning 14.4 million people would see their loan balances reset to zero.
On the other hand, canceling $50,000 for all borrowers would reduce the country’s outstanding student loan debt balance from $1.7 trillion to $700 billion. The $50,000 plan would forgive the debt for all 80% of federal student loan borrowers. This being nearly 36 million people. But what about the rest? A growing number of student loan borrowers owe more than $100,000 and would still be left with large balances even after the $50k in forgiveness. But as they say, any help is better than no help at all.
Let’s put it this way, both amounts of debt forgiveness would benefit the majority of borrowers by clearing out their balances. It would do wonders especially for those who financially struggle the most. We also acknowledge that getting your loan forgiven after you have just finished paying it back isn’t exactly what you want to hear as well. That being said, hopefully justice will be set for everyone impacted by the current situation.