The government’s student loan forgiveness plan: what you need to know
In the coming months, the government will release the plan that grants forgiveness to students indebted for student loans. What can we expect from this project?
by José Gonçalo
Student loan forgiveness: understand the factor involved
In recent weeks, American students have rallied around the same question: “Will student loan forgiveness be approved?”. More than half of American college students (55%) have a student loan to pay off once they receive their degree. On average, student debt is approximately $37,000.
However, it is not uncommon for students to accumulate debts that, backed by interest and penalties, amount to $130,000. A survey showed that indebtedness is usually higher for medicine, law, and dentistry students.
Thus, most recent graduates have to deal not only with the pressure of starting their careers but also with loan repayments. In fact, this debt is already a characteristic of this generation. However, hope arose when the US Congress began debating implementing a student loan forgiveness program.
However, there is a long way to go before a measure of these proportions is signed. Also, it may not even materialize! What can students expect for the future? Read the article below and learn why this process takes so long to conclude.
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What is student loan forgiveness?
Indeed, graduating from university is a dream for many American youth and families. In addition to a goal, this means social and economic ascension. Therefore, many young people are willing to take out student loans to pay their college tuition.
Thus, private and even public companies agree to lend these amounts in the hope of receiving them (with interest!) after graduation. So far, no problems: students would start working and pay off loans with part of their salary. However, American colleges have very high tuition fees.
According to the College Board, tuition costs have tripled in thirty years. Thus, as the income of newly-entered professionals tends to be lower, they find it challenging to pay off loans. In this way, they accumulate debt and interest that make the deficit grow.
Mike Meru (37), an orthodontist who gave an interview to The Wall Street Journal, claimed to have accumulated a debt of $1 million. The “well” of student loan debt got even deeper in the pandemic. For this reason, student loan forgiveness is the “light at the end of the tunnel” for many students.
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What is president Biden’s student loan forgiveness plan?
At some rallies during the presidential campaign, Joe Biden spoke of the importance of forgiving student debts. President Biden is trying to articulate a project to help students in debt. In fact, the White House has already given several signs that it intends to implement such a project.
However, congressional debates have a long way to go before we have a definitive position. However, we already know that total student debt forgiveness is ruled out. Overall, the debt of the 46 million students who applied for loans totals $1.75 trillion.
For comparison purposes, this amount is 440 million higher than the debt of loans to finance the purchase of automobiles. Thus, there will probably be an income limit that will serve as a criterion for selecting students who will receive this pardon.
In addition, the amount of forgiveness awarded to each student must not exceed US$50,000. In fact, there is a strong tendency for aid to be $10,000 for each student. However, this value was not acclaimed by the population.
According to Wisdom Cole, national director of the association’s youth and college division, a pardon of just $10,000 would be “a slap in the face.”
Why’s Biden delaying the decision on student loan forgiveness?
At least five key points are delaying a decision on student forgiveness loans. Below, learn about each of them:
Value of forgiveness
We still don’t have a decision on what would be the amount awarded to each student. Earlier, the president said he would not offer a $50,000 pardon. Thus, there is a strong tendency for the project to go to Congress with a lower amount: $10,000.
However, there is a lot of pressure from senators for this figure to rise.
We are still not sure who will be able to count on this help. Most likely, there will be an income limit. But the values have not yet been defined. However, annual income was probably between $125,000 and $150,000.
The power of the president to pass a measure of this magnitude
In legal terms, there is debate over whether the US constitution allows a president to implement such a project. In the previous period, Trump’s administrative team ruled that a president does not have that legal power. However, Biden has already passed a limit of 25 billion.
Even so, once presented, this project will generate legal challenges.
We are on the eve of an election for Congress. Thus, it is expected that the student debt forgiveness project will influence the upcoming elections. Many may even give up voting if the proposal displeases the student population.
The effect can discourage parents and families of indebted students or strongly influence their votes. Indeed, this kind of development will receive great importance from publicans and democrats.
Currently, the Federal Reserve “walks a tightrope” to avoid rising inflation. Thus, Biden is expected to closely monitor the realization of this project to double this indicator. It is worth remembering that the US has faced the highest inflation in the last 40 years.
When is the government announcing a decision?
According to the Wall Street Journal, Joe Biden is expected to file a decision in July or August. Until then, the population and Congress will have time to make the president’s decision for or “against” the students.
Most American students leave school without knowing the basics of personal finance. However, there is a simple tool to fix this flaw: books. So click on the link below and discover 3 of the top finance books you need to read (or listen to).
Best finance books for beginners: 3 options
There are many finance books for beginners. However, you don't have to read them all: go straight to the most important works.
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