By Jeph Ajobaju, Chief Copy Editor
Up to $5.8b student loan debt in the United States is being cancelled, the largest amount so far, giving succour to hundreds of thousands of citizens weighed down by their inability to fully repay federal loans years after leaving college.
The latest announcement is this year’s biggest yet from the U.S. Department of Education, which has now canceled a total of almost $9 billion in federal student loans for about 455,000 since Joe Biden became President in January.
With their balances gone, the borrowers are better able to save, invest or pay off other debts, per Yahoo Finance Plus.
Meanwhile, tens of millions of Americans continue to wait for word on whether Biden will provide student loan forgiveness on a grand scale.
The cancellation does not involve private loans students take from private financial institutions or similar entities to purse higher education.
Student loans total $1.73tr
Wikipedia reports that student loan debt in the US has grown rapidly since 2006, and amounted to $1.73 trillion by July 2021. Almost half of that being graduate school loans; the average Bachelor’s degree borrower has about $30,000 of debt upon graduation.
With a number of notable exceptions, student loans must be repaid, in contrast to other forms of financial aid such as scholarships, which never have to be repaid, and grants, which rarely have to be repaid.
For example, student loans may be discharged through bankruptcy, by proving “undue hardship” but the bar for discharge is high.
Research indicates the increased usage of student loans has been a significant factor in college cost increases.
US leaders have acknowledged the rise in student loan debt as a crisis. Former Secretary of Education Betsy DeVos said that Federal Student Aid’s portfolio “is nearly 10 per cent of our nation’s debt.”
Default rate higher for African Americans
Wikipedia adds that student loan debt is unevenly distributed, and race and social class are significant factors in the distribution of student loans.
Approximately 30 per cent of all college students do not incur debt.
The default rate for borrowers who didn’t complete their degree is three times as high as the rate for those who did. Student loan defaults are disproportionately concentrated in the for-profit college sector.
In 2018, the National Center for Education Statistics reported that the 12-year student loan default rate for for-profit colleges was 52 per cent.
The 12-year student loan default rate for African Americans going to for-profit colleges was reported to be 65.7 per cent.
A 2018 Brookings Institution study projected that “nearly 40 per cent of students who took out loans in 2004 may default by 2023.”
New forgiveness is granted to disabled borrowers
The fresh debt cancellation – totaling over $5.8 billion – extends to more than 323,000 severely disabled people, says Education Secretary Miguel Cardona, quoted by Yahoo Finance Plus.
“Today’s action removes a major barrier that prevented far too many borrowers with disabilities from receiving the total and permanent disability discharges they are entitled to under the law,” Cardona explained in a news release.
From now on, borrowers who are identified by the Social Security Administration as having a “total and permanent” disability will have their federal student loan debt canceled automatically.
They won’t need to fill out an application for relief, and the department won’t ask for information about their earnings.
“We’ve heard loud and clear from borrowers with disabilities and advocates about the need for this change and we are excited to follow through on it,” Cardona says in the release.
“This change reduces red tape with the aim of making processes as simple as possible for borrowers who need support.”
Earlier actions forgave around $2.9b in student debt
Yahoo Finance Plus recalls that earlier this year, the Biden administration eliminated $1.3 billion in student debt held by seriously disabled borrowers whose canceled loans were reinstated after they failed to supply details about their earnings.
A few additional waves of student loan forgiveness in 2021 applied to borrowers whose schools made phony-baloney promises – or abruptly closed up shop.
Officials say with the latest action, the administration has now wiped out roughly $8.7 billion in student loan debt for around 455,000 Americans.
The Education Department also recently stretched out the pandemic pause on federal student loan payments and interest, for what’s being called a final time – until January 31. The moratorium had been scheduled to end in September.
Broad student loan forgiveness remains a question
But many, if not most, of the 42.9 million Americans holding $1.59 trillion in federal student loan debt – according to Education Department data – want more than just a temporary freeze.
They’re counting on the sweeping student loan forgiveness that Biden campaigned on.
He has said all along he wants to cancel $10,000 in student debt per borrower. High-profile Democrats in Congress, including Senate Majority Leader Chuck Schumer and Massachusetts Sen. Elizabeth Warren, have been urging him to go bigger – and erase $50,000 per person.
So far, there’s been no movement on any widescale debt forgiveness. Biden reportedly asked Cardona to study whether a President has the authority to forgive $50,000 in debt on his own, but that was months ago.
Lawmakers and advocates arguing for the generous relief say it would provide a more meaningful break from crushing student debt that’s kept people from buying homes and cars, getting married and investing for the future.
How to deal with your student debt right now
If you’re not one of the hundreds of thousands whose student loans have been canceled this year, here are a few ways to financially fight back against overwhelming student debt, according to Yahoo Finance Plus.
Refi the debt
You might want to look into refinancing your student loans. Interest rates on student loan refinances from private lenders have been historically low this year, so replacing your debt with a new private loan could slash your monthly payments.
But note that if federal loan forgiveness ever happens, it would not extend to private refi loans.
Refi your mortgage, if you’ve got one
If you own a home, consider refinancing your mortgage.
With 30-year rates averaging less than 2.90 per cent, around 14 million mortgage holders could save an average of about $300 a month by refinancing, mortgage technology and data provider Black Knight has said.
Compare loan offers from at least five lenders to find the best rate for your area and your credit profile.
The best rates go to borrowers with the highest credit scores. If you haven’t seen your score in a while, nowadays you can easily get a peek at your credit score for free.
Build your pennies into a portfolio
Another way to give yourself some financial breathing room is through low-stakes investing in the stock market. One popular app helps you build a diversified portfolio by investing just “spare change” from your everyday purchases.