Student Loan Debt: The facts of forgiveness

While higher education isn’t the path for everyone, many who graduate high school go on to pursue degrees, oftentimes taking out some form of loan to help them pay for their education. Many students struggle to afford college and while financial aid helps significantly, it is not always enough - even when a student takes out the maximum student loans. Taking on loan debt has become more and more of a concern for families who are constantly searching for other means, including using payment plans, and some opt for living at home and/or taking online classes just to save on costs.

Amidst all of the talk of ‘free college’ for current and future students, there is the lingering debt for those who have already gone to college and accumulated a large amount of debt as a result.

According to CNBC, in the United States, student debt has grown significantly over the past several decades, with the Federal Reserve estimating that in quarter two of 2021, Americans owed $1.73 trillion in student loans. In quarter two of 2011, Americans owed roughly $905 billion in student loans, which means that U.S. student debt has increased by more than 91% in the past decade.

“Student loans are the symptom of the real issue – the cost of higher education,” said Betsy Mayotte, president of the Institute of Student Loan Advisors. “Broad student loan forgiveness doesn’t make a lot of sense if it’s just going to accrue all over again. Until we solve the issue that causes the debt to accrue in the first place, I think a better solution might be a permanently lowered interest rate.”

She noted that if all debt is forgiven without solving the cost of higher education issue first, her fear would be an increase in borrowing as students would assume it will just be forgiven, and that she is already seeing that with the talk of possible broad forgiveness under the current administration.

Though she thinks the chances of broad student loan forgiveness are very slim, she said she was pleased to see the recent House Democrats reconciliation legislation for higher education, which creates a tuition-free pathway for a two-year degree and makes it easier to transition that to a four-year degree. This policy alone, if it should pass, should significantly lower the amount of future debt being utilized by students and will help with college completion.

The federal government, the primary lender for Americans who borrow for college, holds $1.4 trillion in debt owed by 43 million borrowers. According to the Urban Institute, each year 30% to 40% of all undergraduate students take out federal student loans, and 70% of students who receive a bachelor’s degree have education debt by the time they graduate.

According to Heather M. Adner, director of financial aid at SUNY Canton, there are over 1,600 SUNY Canton students - a little more than half - using loans to finance their education this year. While she believes loan forgiveness is a good idea, she acknowledges that it’s not a new idea, noting that there have been programs for decades, but it wasn’t until the more recent past that this was expanded.

“It is beneficial, especially in the case of public service loan forgiveness where, before, students may have turned down jobs they wanted and received an education to obtain simply due to the salary and the amount they were having to pay monthly to repay their loans,” she said. “While they could get on an income driven repayment plan, that only lengthens the repayment timeframe and adds extra interest to the loan.”

With possible student loan forgiveness on the table in the U.S., Mrs. Adner said SUNY Canton has already seen more willingness from students to borrow a loan in the hopes they may receive assistance in repaying it through some type of loan forgiveness program.

During the 2020 election season, there was a lot of talk about student loan forgiveness, even wiping it clean for certain students and past graduates. More than 500,000 borrowers had their loans erased this year, and nearly $10 billion in student loan debt has been wiped away since President Biden took office. Beneficiaries include permanently disabled people, those who were defrauded by failed for-profit schools and soldiers deployed to war zones, according to the New York Times.

The interest-free pause on many loans that has been in effect since the COVID-19 pandemic took hold is scheduled to end Jan. 31. An option for local students, New York has a ‘Get On Your Feet’ program where they will assist students by making payments to their federal student loans for their first two years after college, if they qualify for the program. This program was designed to encourage students to remain in the state after they graduated, as living and working here is one of its requirements.

According to Mrs. Adner, SUNY Canton tries to encourage students to not take out a loan if they don’t need it, as it takes an average of 10 years to repay them and, oftentimes, students don’t keep this in mind, especially if they are eligible to receive a refund to help with other expenses.

Jan C. Miller, of Miller Student Loan Consulting located in Bend, Oregon, has been a student loan consultant for the last 24 years, and doubts that student loan forgiveness will be completely unilateral amongst all borrowers. Rather, he thinks it will look more like the stimulus, where people will have to meet certain income thresholds to be forgiven.

“It seems kind of too general to just forgive X amount of dollars for everybody in every situation; it’s not a great way of spending the money,” he said. “I do think that the extension of the Cares Act forbearance was a nice way to push the subject off a little bit further in the future.”

Mr. Miller started working for loan servicers back in 1997 and ended up working for four different loan servicers in 11 different departments over a period of about eight years.

From that point, he went into the brokerage industry and started working for Morgan Stanley, but during that time, everybody he would run into needed help with student loans.

He started helping people and, eventually, the demand for his services became so great that he retired from Morgan Stanley in 2010 and made loan consulting his sole focus. In the last ten years, Mr. Miller estimated his consulting firm has done about 3,000 consultations per year.

“When you’re talking about loan forgiveness, really what you’re talking about is federal student loan forgiveness,” Mr. Miller said. “Although not impossible, it’s unlikely that private loans will receive any of the forgiveness benefits and the Cares Act forbearance only applies to borrowers who have direct federal loans, which means directly owned by the U.S. Department of Education.”

Of course, anyone who’s in debt, especially if delinquent, is going to be happy with any forgiveness they receive. “They’ll take what they can get,” he said, which could pay off a lot of borrowers with undergrad debt. He noted that the average debt right now is approaching $40,000 per borrower.

When talking about reform of the whole student loan system, many agree that student loan forgiveness needs to just be one element to that plan or conversation, because it’s going to take a lot more than that to fix the problem.

“I think that’s been shown, it [loan forgiveness] doesn’t solve the issue of student loan debt, which really fundamentally starts with the cost of education,” Mr. Miller said. “Even if they forgive all student loan debt, if you don’t fix the root of the problem, then we’ll be in another trillion dollars in student loan debt here by the end of the decade.”

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