Post Authored By: Jeff Gold
It’s been more than a decade since the Great Recession. Remember how it brought multibillion-dollar financial corporations to their knees and nearly chased the big American automakers right out of Detroit?
Instead, both industries got a bailout, to the tune of $634 billion, according to ProPublica’s Bailout Tracker.
So, if the giants of capitalism got a pass, will the students paying loans get a bailout as well? Will there be a student debt cancellation plan for you and your former classmates?
A Rising Tide of Student Loan Debt
When you earned your degree, you also most likely earned your way into a not-so-exclusive club. Forty-five million people owe $1.73 trillion in student loans in America. For comparison, that’s $740 billion higher than the outstanding credit card debt in the country.
Student loan borrowers owed about $845 billion in late 2010. This means that in the past decade, student debt has grown by over 100%.
How Many Would Benefit From a Bailout?
Forgiving just $10,000 per person would wipe away the federal student loan debt of 15.3 million borrowers, Insider reported.
Proponents of student loan cancellation say a bailout would:
• Minimize the wealth gap
• Inspire the creation of small businesses
• Encourage homeownership
• Help people feel more confident starting families
Here are two more things backers argue that student loan forgiveness would do.
Spark an Economic Upswing
Bharat Ramamurti, a member of the COVID-19 Congressional Oversight Commission, tweeted what he sees as benefits of student loan forgiveness: “Broad student loan debt cancellation via executive order is good economics and politics.”
He added, “One study has found that canceling all debt would have a big stimulative effect. Of course, the impact would be less if less debt were canceled, but debt cancellation is one of the relatively few ways to stimulate the economy without Congress.”
Benefit All Federal Student Loan Borrowers
Upper-income households owe almost 60% of the outstanding education debt and make almost three-quarters of the payments, the Brookings Institution noted. Lowell Ricketts, a lead analyst for the Center for Household Financial Stability at the St. Louis Fed, agreed that loan forgiveness would disproportionately benefit affluent graduates.
But he pointed out that forgiving $10,000 of student debt would help many low-balance borrowers as well and resolve the problem of overdue payments that 19% of that group has.
The Price of Student Loan Debt Cancellation
While it might sound like a good idea in the face of high debt balances and delayed dreams, one reason it might not come to fruition is the price tag. Erasure of $10,000 for all 43 million borrowers would cost $377 billion. Canceling $50,000 for all 43 million would cost over $1 trillion, according to The Conversation, which publishes pieces by academics well-versed in these areas.
The issue of wiping out student loan debt may have another fairness factor. Former students who successfully paid off their loans may not appreciate seeing millions of current borrowers let off the hook.
And while you can default on a mortgage or get rid of most credit card debt by filing for bankruptcy, most student loans are owned by the federal government, and are extremely difficult to get discharged except for all but the most extreme circumstances.
Paying Down Your Student Loans
Even without a student loan bailout plan, options exist for dealing with your debt.
If you refinance your student loans with a private lender, you may qualify for a lower interest rate, which could shave off a significant sum over the life of your loans.
Some lenders refinance both private and federal student loans. If you decide to refinance, you’ll typically have a choice between a fixed or variable rate, both of which carry their own risks and rewards. A fixed-rate stays the same for the life of the loan, so you always know what your monthly payment will be.
Variable-rate loans can fluctuate as the economy roars or slumps. They’re usually tied to a well-known index, so your payment amount may fluctuate over time. The potential benefit, however, is that initially, the variable rate is sometimes lower than the fixed rate.
You may also have term options if you refinance your student loans. You can shorten your loan term, which can help get you out of debt faster or extend your term, which could ideally lower your monthly payment but, again, means more interest accrues over the life of your loan.
Just know that if you’re refinancing your federal loans into private loans, you’ll be giving up federal benefits and protections such as federal deferral, forgiveness options, and income-driven repayment plans.
Question marks swirl around student debt cancellation. Amid all the noise about the topic, it may be a good idea to take measures of your student loan rates and terms and plot a smart course.
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About the Author
Jeff Gold is the Director of Business Development for SoFi and currently is the dedicated Account Manager for the Chicago Bar Association. Jeff has been with SoFi for three years and has extensive experience working with SoFi’s legal partners and Bar Associations. Prior to joining SoFi, Jeff held various roles helping organizations align their benefits with their employee wellbeing goals. Jeff currently lives in beautiful New Jersey with his wife and two young children. Jeff will be presenting a live webinar on May 24, 2022 at 12pm CT regarding student loan refinancing. Click here to register!