Student loan: Can you expect debt relief anytime soon?
Former POTUS and FLOTUS Barack and Michelle Obama didn’t pay off their student loan debt until they were in their 40s.
In 2019, New York Congresswoman Alexandria Ocasio-Cortez famously made a student loan payment while at a Congressional hearing on student debt that took her down to US$19,000.
Actress Kate Walsh was quoted saying that she was only able to pay off her student loans at the age of 37 after getting on the hit show Grey’s Anatomy.
It’s clear that it’s not just the average Jane and Joe’s stuck with these payments.
In the US, student loan debt has ballooned to become a trillion-dollar crisis. The Federal Reserve notes that in the fourth quarter of 2020, Americans owed some US$1.7 trillion in student loans.
Student loan debt is a common problem faced by many Americans and yet, many find themselves swimming in debt long after graduating.
It has led many to delay making major life milestones, from getting married to buying a house to pursuing their postgraduate studies.
Biden’s student debt relief plan
At a recent CNN Town Hall, US President Joe Biden was asked if he would cancel US$50,000 of student debt for struggling borrowers which he said he “would not make that happen.”
He added that he was unwilling to offer relief to borrowers who attended Ivy Leagues such as Harvard, Yale, and UPenn.
Reports, however, say only an estimated 0.3% of borrowers attended Ivy League institutions.
Instead, Biden said he would support a smaller amount of student loan forgiveness — US$10,000 per borrower.
He also plans to make public colleges tuition-free for families making US$125,000 or less, and community colleges free for all.
The House of Representatives has approved Biden’s US$1.9 trillion stimulus package following the economic downturn and effects of COVID-19. The stimulus plan, however, does not provide for any direct student loan relief, said Forbes.
Instead, the Biden administration said the White House will push Congress to pass additional legislation in the coming months providing for student relief, including some level of student loan forgiveness for borrowers.
As such, borrowers will need to bolster efforts to whittle down their debt if little help is being offered by the government.
What you can do to lessen the burden of your student loan debt
Many postgraduate students might find that their graduate school debt is often compounded by loans they took out for undergraduate studies.
While there are many ways to help tackle your debt, be it from finding a high-paying job to finding a second job to complement your main income, another potential option for those who are struggling under the weight of their loans is consolidating their student loans.
Federal Student Aid notes: “A Direct Consolidation Loan allows you to consolidate (combine) multiple federal education loans into one loan. The result is a single monthly payment instead of multiple payments. Loan consolidation can also give you access to additional loan repayment plans and forgiveness programmes.”
Some of the benefits of consolidating your loans could include:
- simplifying your loan repayment by giving you a single loan with just one monthly bill
- lowering your monthly payment by giving you a longer period of time to repay your loans
As consolidating your loan means you’ll be paying less each month, ultimately, you’ll be paying more in the long run in interest.
This option is not likely to be the best option for those who don’t want to extend the period of their loan repayment.
“When you consolidate your loans, any outstanding interest on the loans that you consolidate becomes part of the original principal balance on your consolidation loan, which means that interest may accrue on a higher principal balance than might have been the case if you had not consolidated,” explained Federal Student Aid.
Consolidation could also mean you’ll lose borrower benefits like interest rate discounts that are associated with your current loans.
“If you’re paying your current loans under an income-driven repayment plan, or if you’ve made qualifying payments toward Public Service Loan Forgiveness, consolidating your current loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness or PSLF,” it said.
Ramsey Solutions notes that you should only consolidate your student loans if:
- It won’t cost you anything to consolidate them
- You can get a fixed interest rate instead of a variable rate
- Your new net interest rate is lower than your current net interest rate
- You don’t sign up for a longer repayment period
- You don’t get so relieved by the thought of a single payment that you lose your motivation to pay off your debt fast
Ultimately, deciding whether or not to consolidate your loans depends on personal circumstances, so think it through or seek professional advice before taking the plunge.