If voters weren’t already angry enough about student loan forgiveness, borrowers are now saying it doesn’t even matter.
Last summer, the Supreme Court stopped President Biden’s first plan to cancel a lot of student debt. Now, the Education Department is working on a new plan to provide more help.
However, Biden’s SAVE repayment plan also has problems. Although some people have already received relief from it, a recent court decision blocked its progress.
This fall, the department also wants to start a new forgiveness plan using an old 1965 law. This plan could help over 30 million borrowers by canceling debt for those with unpaid interest, those who have been paying for at least 20 years, and those who went to schools that left them with a lot of debt. However, this plan also faces legal issues.
Education Secretary Miguel Cardona has promised that the department will keep trying to help as much as possible. But as many critics suspected, paying off student loans isn’t enough for these borrowers.
A recent Wall Street Journal report says that student loan forgiveness hasn’t helped many people who are still struggling financially. The report mentions that even though over 900,000 borrowers have had their loans forgiven completely or partially through the Public Service Loan Forgiveness plan and another two million through other programs, many are still dealing with other debts or poor credit scores.
The article explains that just because their monthly student loan payments have stopped, it doesn’t mean they suddenly have extra money, especially if they weren’t making regular payments before.
In a head-exploding moment, Constantine Yannelis, an associate professor of finance at the University of Chicago, said, “For the typical borrower, the forgiveness is nice but not life-changing.”
Nice, but not life-changing. Why?
Yannelis and other researchers discovered that people often end up with new debt, like credit card debt, home loans, or car loans, after their student loans are forgiven. The study also showed that forgiving student debt doesn’t change their credit scores.
A professor who had $90,000 of her debt forgiven said it felt like getting “sandbags off my back.” She felt the relief wasn’t perfect, but it “helped” her situation. She mentioned that while her life didn’t improve dramatically, she now has more control over how to use the $900 a month she spends on loan payments.
Another ungrateful borrower who had her student loan debt erased earlier this year explained why it wasn’t enough. Despite having $82,000 in debt passed on to taxpayers, she is still paying for her son’s college and trying to qualify for a mortgage after losing her job. Despite these challenges, she hopes to buy a home someday and “build a better future for her kids.”
The Education Data Initiative says that most people with federal student loans in the U.S. owe an average of about $38,000, and when you include private loans, the total is over $40,000.
Biden’s Public Service Loan Forgiveness plan helped many borrowers by canceling their loans after they made 120 qualifying monthly payments while working full-time for a public or nonprofit organization. The Wall Street Journal report says that another 1.3 million borrowers are set to have their loans forgiven through a program for students “misled” about things like job opportunities. More relief is expected for others as well.
Many people took on new debt during the COVID-19 pandemic when federal student loan payments were paused. With the pause on payments, some borrowers used the “extra money” for other expenses or new loans, such as credit card debt, car loans, or home loans. This means that even though their student loan payments were on hold, they had new financial obligations.
Fiscal responsibility should have dictated that they set aside the money to repay their loans or continue to pay them despite the pause. The fact they considered it “extra money” proves that taxpayers should not have to shoulder the burden of others’ bad choices.
Now, these borrowers are complaining that having a massive loan wiped away isn’t enough. They say that they still face daily living expenses. Most of us call it life. Yet, there are some among us who expect to be exempt from financial struggles simply because they are breathing. For them, “forgiving” student debt isn’t enough. And based on the report, it never will be enough.
Those who live within their means would love to try ditching loan payments. Mortgage forgiveness, anyone?
