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The Case for Student Loan Forgiveness

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The Case for Student Loan Forgiveness

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The Case for Student Loan Forgiveness

Student loan debt is the second highest debt category, right behind mortgage debt

  • There are 44+ million borrowers in the United States
    • $1.44 trillion in student loan debt
    • $26,700 average student loan debt
    • Outstanding debt by student loan program
      • Direct loans – $949.5 billion
        • 31.5 million borrowers
      • Federal Family Education loans – $335.2 billion
        • 16.4 million borrowers
      • Perkins loans – $7.9 billion
        • 2.7 million borrowers
      • Total – $1,292.2 billion
        • 42.3 million borrowers
    • Outstanding debt by student loan type
      • Stafford Subsidized – $270.1 billion
        • 29.5 million borrowers
      • Consolidation – $447.3 billion
        • 12 million borrowers
      • Stafford Unsubsidized – $436.1 billion
        • 27.8 million borrowers
      • Stafford Combined – $706.2 billion
        • 32.6 million borrowers
      • Grad PLUS – $53.0 billion
        • 1.1 million borrowers
      • Parent PLUS – $77.8 billion
        • 3.5 million borrowers
      • Perkins – $7.9 billion
        • 2.7 million borrowers
    • Loan delinquency
      • In 2016, loan delinquency reached 11.2%
        • Paying loans becomes less of a priority than paying rent, mortgage, phone bills, and credit card balances
      • 1 in 10 borrowers are 90 days behind in repaying their student debt
      • As of 2016, 8 million borrowers defaulted on their student loans
      • On average, over 3,000 borrowers every day default on their federal student loans

50% of 18 to 34-year-olds say that they would give up the right to vote in the next two elections to have their debt forgiven

  • Student Debt Cripples Young People
    • Less likely spend money to boost the economy
      • 33.5% of consumers say student debt affects their holiday spending
        • Spend less on:
          • 61% gifts
          • 39% travel plans
          • 28% charitable donations
          • 28% holiday gatherings
    • More likely to have a second job
      • Bachelor’s degree holders with outstanding student loans are 2X more likely to work more than one job
        • Grads with loans: 21%
        • Grads without loans: 11%
      • Young colleges grads with student loans are 2X less likely to be living comfortably
        • Grads with student loans: 27%
        • Grads without student loans: 45%
    • Less likely to say their degree is valuable
      • College degree holders are likely to say “The lifetime benefits of my degree outweigh the costs”
        • Grads with loans: 51%
        • Grads without loans: 69%*
          • *Of graduates with at least a bachelor’s degree ages 25-36
    • Less likely to live the American Dream
      • Of Americans with student loans in 2016
        • 40% delayed buying a house
          • 37% moved in with family members
        • 46% delayed buying or upgrading a car
        • 20% delayed marriage
        • 19% delayed having children

Luckily, some student loan forgiveness programs can ease the burden by forgiving some or all federal student loans

  • Major Student Loan Forgiveness Programs
    • Public Service Loan Forgiveness
      • For people who work in public service jobs for the government or nonprofit organizations
        • Who Qualifies: Firefighters, teachers, military personnel, volunteers, nurses
      • Any remaining loan balance forgiven after at least 10 years of full-time work for a nonprofit or the government
    • Perkins loan cancellation
      • Up to 100% of loans can be canceled
        • Who qualifies: Teachers in low-income public schools, firefighters, nurses, police officers, school librarians, public defenders qualify
      • Each year of full-time employment, elementary and secondary school teachers are forgiven a percentage of a Perkins loan
        • Year 1-2: 15%
        • Year 3-4: 20%
        • Year 5: 30%
    • Teacher loan forgiveness
      • $17,500 in direct or Stafford loans forgiven
        • Who qualifies: Teachers who work in low-income public elementary or secondary schools full-time for 5 consecutive years
    • Income-based repayment plans
      • Income-based repayment (IBR)
        • Amount adjusted in relation to borrower’s income
      • Income-contingent repayment (ICR)
        • Income-driven payment plan for parent PLUS loan borrower
      • Pay As You Earn (PAYE)
        • Withholds 10% of monthly discretionary income
      • Revised Pay As You Earn (REPAYE)
        • Withholds 10% of monthly discretionary income to direct loan borrower

Despite the popularity of these programs, some debate how much they really help

  • Should you pursue loan forgiveness?
    • 25% of the U.S. workforce is employed by a public service employer
      • May be eligible for Public Service Loan Forgiveness
    • Pros and cons of student loan forgiveness programs
      • Pros
        • Pay off student debt more quickly
          • As long as you meet program requirements and make a set number of payments, some debt can be forgiven after 10 years
        • Can qualify with several different jobs
          • Don’t necessarily have to enter public sector to qualify for Public Service Loan Forgiveness―the program considers the employer, not the type of job
      • Cons
        • The program may be cut
          • Federal funding is reappropriated with every budget debate
          • AmeriCorp was slated to be cut in 2011, and political agendas can put others on the chopping block
        • You must complete the requirements
          • Loan interest continues to add up during your service in programs like AmeriCorps and Teach for America
          • The payments will be waiting for you if you drop out early
    • Other options
      • 76% of loan borrowers say an employer offering student loan repayment assistance would be the deciding factor or would have considerable impact on choosing a job
      • Only 4% of companies offer loan assistance
        • Fidelity
        • PricewaterhouseCoopers (PwC)
        • Aetna
        • Penguin Random House
    • According to a 2017 survey by MoneyTips.com
      41.8% of Americans say they believe the Department of Education should forgive all student debt

Student debt may never be wiped out, but forgiveness programs can ease the burden on over 44 million students―and maybe help them reclaim the American Dream

Sources:

https://studentloanhero.com/student-loan-debt-statistics/

https://www.valuepenguin.com/average-student-loan-debt

https://www.makelemonade.co/student-loan-debt-statistics

http://www.businessinsider.com/americas-student-loan-debt-facts-2017-4

https://www.usnews.com/news/articles/2013/08/06/half-of-outstanding-student-loan-debt-isnt-being-repaid

https://www.credible.com/blog/survey-millennials-student-loan-debt-forgiveness

https://studentloanhero.com/featured/holiday-debt-spending-survey/

http://www.pewresearch.org/fact-tank/2017/08/24/5-facts-about-student-loans/

https://www.aicpa.org/press/pressreleases/2016/pages/-more-than-eighty-percent-of-american.aspx

http://www.investopedia.com/articles/personal-finance/122416/student-loan-forgiveness-how-does-it-work.asp

https://www.nerdwallet.com/blog/loans/student-loans/student-loan-forgiveness/

https://beta.consumerfinance.gov/ask-cfpb/what-is-public-service-loan-forgiveness-en-641/

https://www.collegeraptor.com/paying-for-college/articles/student-loans/pros-and-cons-of-student-loan-forgiveness-programs/

http://msue.anr.msu.edu/news/student_loan_forgiveness_understand_the_cons

http://www.asa.org/wp-content/uploads/2017/06/life_delayed_whitepaper_2015.pdf

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/student-loan-assistance-benefit.aspx

https://www.forbes.com/sites/zackfriedman/2016/12/19/student-loan-repayment-benefit/#11d787fa1d6f

https://moneytips.areavoices.com/2017/07/24/moneytips-survey-americans-believe-we-should-forgive-all-federal-student-debt/

https://www.cnbc.com/2017/03/14/more-than-11-million-borrowers-defaulted-on-their-federal-student-loans-last-year.html

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