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A Take on Student Loan Forgiveness

September 12, 2022
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Student loans is a topic that has made headlines for a number of years and more consistently for the past two years, since the 2020 presidential election. As President Biden stated that during his run for president he would look into and execute student loan forgiveness. There was never a set plan put in place on the campaign trail, but that changed during August. 

With no easy solutions to lighten the debt load on borrowers, President Biden announced the Student Debt Relief Plan. The aim of this plan is to forgive $10,000 per borrower with some receiving $20,000 in forgiveness if the borrower has Pell Grants. The forgiveness will only be given if the individual has an income of less than $125,000 for single income filers and $250,000 for joint income filers, using your 2020 or 2021 tax returns for these numbers. Additionally, the student loan payments were paused until 01/01/2023 and there will be a restructuring of the Income Driven Repayment Plans that loan providers offer. Each borrower will have to apply to earn this forgiveness with the deadlines to submit an application being December 31, 2023. After the application is submitted, they are hoping for an eight week turnaround period before the forgiveness reflects on the student loan borrower’s amount. 

So, why exactly did President Biden feel compelled to do this? Well, when you look into the student debt data you can see that something needs to change. According to a Forbes article in June of 2022, the student debt amount is close to $1.75 trillion with that being a combination of both federal and private loans. Per borrower there is an average of about $28,000 of student loan debt with about 45 million borrowers.

How did we get to this point? The answer to this is simple: the cost of education at the highest level has increased dramatically over the past 59 years as it has increased 747.80% during that time. When you have this type of dramatic price increase with seemingly no end in sight, it is a glaring problem. Accompany this with the push for more and more students to go to higher education institutions with the hopes of careers after doing so, and we have a recipe to amass a lot of student loan debt. 

The ultimate goal for loan forgiveness is to provide some relief to those borrowers that have a significant amount of loans. By giving these borrowers some relief, the ideal result is to stimulate the economy as borrowers will have more funds to spend within the economy. This hopefully gives the borrowers the ability to take on bigger purchases like houses, cars, and other large expenditures like that. 

Long term, ideally this is the only time that student loan forgiveness of this scale has to be applied. The way that happens is if there are solutions provided to fix the root of the cause, which is the incredible rate at which college tuition increases. I’m not here to provide any possible solutions to that specific problem in this blog, but it is the main problem we have.

Ultimately, what results do I think will come from student loan forgiveness? I think those with lower amounts of student loans benefit much more. The borrowers with $10-$20k will find themselves with little to no debt left, giving them the freedom to explore bigger purchases and be out from under student debt. However, for those borrowers with $80k+ in student loans, especially when you reach the $150k level and higher, this $10k won’t go very far. It is a nice idea, but it is a drop in a bucket for some of those borrowers. So I think the results and reactions will be a bit divided in the end. I do hope it helps everyone as much as possible and those with debt can find their ways out of it, but time will tell. For the economy, it is hopeful that it does stimulate the economy over time but it will be seen how much exactly it is able to do so. 

We can expect much more conversation around this topic in the media and I’m curious to see where that conversation leads.