Canceling student loan debt is no excuse to borrow more
This decision could lead people to take on more debt.
The White House said nearly a third of borrowers have student debt but no degree. I fear setting a precedent that widespread loan forgiveness will again be available. It is paramount that we manage borrowers’ expectations.
Some students looking to take advantage of the promised discount have already taken out more loans, according to Betsy Mayotte, president of the Institute of Student Loan Counselors.
“There are people asking for loans for this semester or more loans than they originally asked for because they assume they are going to be forgiven,” said Mayotte, who works closely with students. and borrowing parents.
Calculate here the amount of your student loan that can be canceled
This fall, millions of high school students will begin applying to college for the 2023-2024 school year. One wonders if they might overwork themselves in the hope that they too won’t one day have to repay some or all of their loans.
Only current borrowers are eligible for cancellation of fully disbursed loans by June 30, Mayotte said in an interview. “We opened Pandora’s box,” she said.
Over the past five years, Mayotte said it has seen a tendency for borrowers to assume they won’t have to repay their loans.
Mayotte said she received an email from a woman in her 70s who decided to go back to college to get a master’s degree, racking up $100,000 in student debt.
“She said, ‘I want to know how I can get forgiveness because I’m old,'” Mayotte said. “It would never occur to anyone that their car loan would be forgiven. It would never occur to anyone that their credit card debt would be canceled other than through bankruptcy.
Mayotte said she was in favor of the forgiveness, but worried that some people would take it as a sign of future debt relief and borrow on that assumption.
Opinion: The student loan announcement was a costly mistake
Biden’s announcement last week could encourage families sending their children to college to take on too much debt. And that doesn’t address the underlying problem: the high cost of a college education.
Many families don’t shop for college like they do for other big expenses, Mayotte said. This is something I have observed as well. The choice of college becomes an emotional one, with parents and students ready to take on uncomfortable debt.
As a parent who has repeatedly been stung by over-promising my children, here’s a warning: don’t take on future student debt that you can’t afford in anticipation that it will be wiped out.
This has to be said given the euphoria of people desperate to know when they might get some, if not all, of their student loans forgiven. Outstanding student debt stood at nearly $1.6 trillion in the second quarter, according to the Center for Microeconomic Data at the Federal Reserve Bank of New York.
Who is eligible for the new $10,000 Student Debt Cancellation Plan?
News of debt cancellation rightly brought down the feds studentaid.gov website. Millions of people were hoping for this relief. When I tried to access the site, I was placed in an online waiting room with a notice saying, “StudentAid.gov is experiencing a large number of visitors. You will be able to access the site temporarily. Thank you for your patience!”
Colleges have failed for too long to get spending under control because students and their parents have essentially been given a blank check to pay for their education by allowing them to borrow crippling debt through federal and private loan programs.
Live your life as if this is the last time student loans will be forgiven. Just look at the Federal Public Service Loan Forgiveness Program (PSLF), which was created under the College Access and Cost Reduction Act of 2007. There is no better proof of government incompetence in loan forgiveness than the PSLF in which the remaining balance is forgiven after 120 qualifying monthly payments.
What types of people have student loan debt in the United States?
Here’s what happened, though. Borrowers were misled or misinformed on how to qualify for the PSLF program. Only direct federal loans are eligible for the PSLF. You must repay the debt under a certain income-tested repayment plan while working full-time for an eligible employer. Many borrowers have discovered after making what they thought were qualifying payments that they were not on the right track to getting rid of their debt.
The Ministry of Education steps announced in April to address longstanding issues with the program, which included a one-time waiver that would count previously ineligible payments toward the PSLF, including for people with previously ineligible types of federal student loans. The waiver, by the way, ends on October 31. You can learn more about waiver studentaid.gov/pslf.
“Student loans were never meant to be a life sentence, but it certainly is for borrowers who are barred from the debt relief they are eligible for,” the secretary said at the Education, Miguel Cardona, announcing appeals to the PSLF.
We need to address the underlying problem of getting an affordable college education with little or no debt, because it’s never good financial planning to go into debt that you have no chance of paying back.