by Edwin Quinabo
Millions of young adults and families will get a fresh start under a student loan forgiveness plan that many are already calling a big boost.
No longer waiting for Congress to deliver a comprehensive loan forgiveness bill, President Joe Biden fulfilled an election promise via executive power by recently ordering the U.S. Department of Education to cancel up to $20,000 of federal student loan debt.
“If all borrowers claim the relief that they’re entitled to, 43 million federal student loan borrowers will benefit,” the White House said in a press release. “And of those, 20 million will have their debt completely canceled.”U.S. Secretary of Education Miguel Cardona said in a statement, “Today, we’re delivering targeted relief that will help ensure borrowers are not placed in a worse position financially because of the pandemic, and restore trust in a system that should be creating opportunity, not a debt trap.”
Who qualifies and for how much
“In keeping with my campaign promise, my Administration is announcing a plan to give working and middle-class families breathing room as they prepare to resume federal student loan payments in January 2023,” Biden said.
Policy experts say Biden’s loan cancelation program is geared to assist middle-class and lower-incomed families. Under his plan, individuals who
1) meet income requirements will be eligible for up to $10,000 in debt cancellation.
– Single borrowers are eligible for the relief if their adjusted gross income in 2020 or 2021 was less than $125,000.
– Married couples and heads of households need an AGI below $250,000 to qualify.
For current students who are dependents, eligibility will be based on the income of their parents.2) Another $10,000 could be waived for some people who also received federal Pell Grants, which are awarded to students based on financial need. But they also must meet the income requirements. The White House said more than 60% of current federal student loan borrowers also received Pell Grants.
While many college graduates with loans expressed excitement and gratitude, others say more could have been done. Over 44 million college graduates are saddled in student debt ranging from an average of $30,000 to as high as over $200,000 for professionals like medical students. Depending on a borrower’s plan for repayment, a $200,000 loan could take about 20-25 years to pay off. The average student loan payment is $400 a month.
Other Democrat leaders earlier supported a $50,000 loan forgiveness instead of Biden’s $10,000. Senate Majority Leader Chuck Schumer said “Student loan debt is weighing down millions of families. We must do everything in our power to deliver real relief to the American people,” he said.
Senator Elizabeth Warren (D-Mass.) said “People need this. Our country needs this. And one of the best ways to create a 21st-century economy is by investing in people who have invested in their own education.”A $10,000 forgiveness would reduce outstanding federal student loan debt by $380 billion, but more than half of this relief would go toward families in the top 40 percent of income-earners, while the bottom 40 percent would receive just a quarter of the relief because lower-income families take on larger student debt loans.
Republicans have rejected all attempts at student loan forgiveness. Sen. Richard Burr, the ranking Republican on the Senate Health, Education, Labor and Pensions Committee, released a statement saying that Biden is “asking taxpayers to subsidize debt held by some of America’s highest earners in order to court votes.”
General public supports loan cancelation
In June, an NPR/Ipsos Poll found a majority of the general public (55%) supported forgiving up to $10,000 of a person’s federal student loan debt. Forty-seven percent of all respondents said they supported forgiving up to $50,000 in debt, while 41% expressed support for wiping the slate completely clean for all borrowers.
While there is considerable support for loan forgiveness, and some say it isn’t enough, there are others who want some kind of option for loan holders who already paid off some or all of their college loans.
James Pagdilao, Hilo, HI, said “I think that Biden’s loan forgiveness program is a good option for those who have outstanding student loans, and as long as there is an option for those who have already paid towards their loans to get a reimbursement, then the program is fair.” He adds, “The amount proposed is fine, I am not sure of the exact math for this but everything comes at a cost, whether it’s directly from taxpayers or another part of the government’s budget.”
White House Press Secretary Karine Jean-Pierre told CNN, “Assuming that 75% of folks who take us on, on the president’s student loan cancellation plan, and you look at the average monetary cash flow on that, it’s going to be about $24 billion per year.”
That’s below what other independent budget experts have forecast. The Committee for a Responsible Federal Budget estimated the cost of the plan at about $500 billion over the next 10 years.
Pagdilao took out both federal and private student loans totaling $24,000. He has about $9,000 left in federal student loans. “So far the loans have been quite difficult to pay off, due to interest having accumulated prior to the moratorium of interest and payments for these loans from COVID-19. I am still in the process of paying these loans off and the forgiveness will help with the Federal Portion of my loans.”Pagdilao aims to become a doctor. “So anything off of an estimated $200000+ loan helps,” he said.
Raymond Soriano, Makakilo, said “Immediately when I heard of the news I contacted my two nieces who both recently finished their master’s degree on the mainland. I know they took out loans but don’t know if they’d qualify for Biden’s loan cancelation program. They both were excited to hear about it and said they’d definitely look into it.”
Soriano said, “about two years ago when I heard Biden was contemplating forgiving college loans, at the time my other niece was about to start medical school so I advised my sister to make sure she gets federal loans as much as possible, and that the originator of those loans are held by the federal government, and not just in name only because some private lenders like to use the word federal as a misleading trick. Now, this niece should also be able to get some benefit with this debt cancelation.”
Types of loans that qualify
Besides income requirements, student loan borrowers must look at the type of loans they have in order to qualify for Biden’s debt cancellation program. The U.S. Department of Education says that all federal loans held by the department are eligible for forgiveness including undergraduate loans, graduate loans, spousal loans, and Parent PLUS and Grad PLUS loans.
Parents who owe Parent PLUS Loans may be retired and therefore have limited income. The latest student loan debt statistics show that there are approximately $100 billion Parent PLUS Loans outstanding.
Borrowers with FFEL or Perkins loans not owned by the Education Department could consolidate their loans into a Direct Consolidation loan.
Loans from private lenders are not eligible for debt cancellation. Some Federal Family Education Loans and some federal Perkins loans — specifically those that originated with and are owned by a private bank, college or other entity — may not be eligible for cancellation.
The Federal Student Aid office says individuals can review their loan documents or log into their account at studentaid.gov to check if their loan is federally or privately held.
Loans that were made after June 30 this year are not eligible for cancellation.
How to apply for debt cancelation and time frame
The application for cancellation should be available sometime in early October, said Bharat Ramamurti, deputy director of the White House National Economic Council. Individuals can sign up on the Education Department website to be notified when the application is available.“Once the borrower completes the application, they can expect relief within four to six weeks,” he said.
He said applications will be accepted until Dec. 31, 2023, but administration officials are encouraging borrowers to apply before Nov. 15 of this year to ensure that they benefit from the debt cancellation before monthly loan payments restart in January.
Mason Aquino, Honolulu, a graduate from a private university in Oahu, is one of many Filipinos pleased with the federal student loan forgiveness. His current student loan balance is $35,000; about 40% of it, around $14,000 is loaned by the federal government. He says he pays $400 a month that will run through 10 years.
“I fully support federal college loan forgiveness because it is a huge step toward fixing our education system. It’s the government’s job to support its people. Student loan forgiveness is such a huge help to millions of graduates in the country. I understand why some people would be against this, but at the same time, that’s just being selfishness right there,” said Aquino.
Like many other students, Aquino said he is currently paying his student loans with more loans, “it’s a never-ending loan cycle. And I know a lot of people are doing this too.”
Other actions on college loans
Besides the debt cancelation, Biden also extends the COVID-19 pandemic-related pause on repaying federal student loan debt until Dec. 31. The pause, which included waiving interest as well as penalties and action on defaulted loans, began in March 2020, at the start of the pandemic.
The president also has proposed capping monthly payments for current and future undergraduate loans at 5% of a borrower’s discretionary income, down from 10%.
On a potential to affect inflation
Inflation, or the Consumer Price Index, is 8.5% according to the latest figures from the Bureau of Labor Statistics.
Some critics question if the debt cancelation would raise inflation. George Selgin, senior fellow and director emeritus of the Center for Monetary and Financial Alternatives at the Cato Institute, said the loan forgiveness plan would make inflation go up, but “not very much.”
The Penn Wharton Budget Model puts the inflation increase at 0.2 percentage points over the next six months to a year.
“Nearly forgiving these loans isn’t quite the same as putting money in people’s pockets,” Selgin said in explaining why he thought the inflationary impact would be small relative to the amount of government spending involved. Those affected will have less debt and less reason to save money to pay off the debt, “but it hardly follows that they’re going to go on spending sprees. It’s not the same as getting a windfall in their bank accounts,” he said.
Other economists, such as those at Goldman Sachs have said the inflationary impact would be essentially zero, because the resumption of student loan payments at the end of this year would offset increased spending by those who had part or all of their loans forgiven.
Mark Zandi, chief economist of Moody’s Analytics, went the complete opposite saying Biden’s college debt policies will cause a net drop in inflation of 0.03 percentage points.
High cost of higher education is the real issue
In the same NPR/Ipsos Poll, when asked to choose between debt forgiveness and addressing the high cost of college, an overwhelming majority — borrowers and non-borrowers alike — said addressing the rising cost of college was most important.
According to ThinkImpact website, in the 2020-2021 school year, the average tuition and required fees for a year at a public college for an in-state student was $10,388 and $22,698 for an out-of-state student. A typical undergraduate degree at a public college is upwards of $40,000 to $85,000. This does not include living expenses.
The average cost of tuition and required fees for a year at private college for the 2020-2021 school year was $38,185. A typical undergraduate degree at a private college is about $160,000. This does not include living expenses.
Soriano said the cost to get a college degree now is off the charts. “Tuition and fees alone are expensive and consider also that the cost of living has gone up. Most students today have to take out big loans plus work, and they’re not finishing their undergraduate degree in four years, most of the time, which makes it more costly.”
“I think about how many smart kids who will not go on to college because they cannot afford it. In some other countries, higher education is either free or affordable. We talk about valuing education in this country. I question the truth of that. If we really did value education, we would find a way for college to be more affordable so that most kids can further their studies,” Soriano said.
“Biden’s cancelation of some money to help out these young kids (and their parents) wanting to make a better life for themselves is a good start. The big picture is that education needs reforming,” Soriano said.
by Edwin Quinabo