Terry’s Columns Student Loans Now Hot Topic

Student Loans Now Hot Topic

By Terry Savage on November 24, 2020

Whether you’re a current college student or dealing with student loans you took out years ago, the Covid pandemic has created a special kind of angst. Here’s a look at how current students are being impacted – and some updates on what’s being proposed by a new administration to help you deal with your existing student loan debt.

Current Agony
New research from AIG Retirement Services and Everfi, a financial literacy technology company, reveals the impact of Covid uncertainty on today’s students. Caught between online learning and restricted campuses, it’s not only their education that suffers. In a rude awakening for college students, the survey found that most students have anxiety about Covid-19 – and less than half feel prepared to manage their anxiety. So much for the happy, carefree days of college.

Even worse, nearly one third of students reported that Covid-19 has put extra financial stress on their families. And they were looking for more financial aid, scholarships, and part-time jobs. More than half (57%) say they will have student loans at graduation, and more than a third of students say they have at least two credit cards.

Student Loan Repayment Problems
Student loans are now the second largest category of American debt. The only larger category is mortgage debt. At $1.6 trillion, there is more student loan debt outstanding than credit card debt!

Those with balances have a bit of grace thanks to the Cares Act, and to an executive order extending the period in which borrowers can skip payments, without interest. The amount skipped is being added to the end of the loan. That means many borrowers will be paying on those loans up until the time they should be considering retirement!

Even worse, that executive order ends on December 31st – unless the President extends it. Or unless Congress includes that provision in another stimulus bill. Of course, that depends on a lot of political change in the two months until a new administration takes over. And with the Senate control still dependent on the outcome of the Georgia elections in doubt, there many not be enough votes to pass new legislation.

But there is hope for student borrowers in the proposals that are currently being made public.

Proposed Student Loan Remedies
• President-elect Biden has said publicly that he supports the earlier proposed House stimulus bill, which would extend the suspension of payments until September, 2021 – and immediately forgive up to $10,000 of student loan debt.

• Another alternative comes in the “Securing a Strong Retirement Act” that was introduced in the Democrat-controlled House. It would include a provision that allows student loan debtors to receive matching employer contributions for student loan debt repayments, instead of contributing to their retirement accounts.

• There is also a discussion about whether the next President could simply cancel or change student loan debt provisions by executive order. That would not require an Act of Congress, though it might face challenges.

Elizabeth Warren, who is mentioned as a Cabinet secretary, long ago proposed waiving the first $50,000 of student loans. But more likely would be expanded access to the underutilized and overly complex Public Service Loan program. This program might be broadened by executive order for those who are in public service careers, including teaching and medical fields.

While some may think it’s unfair to suddenly wipe out a large portion of student debt, that argument can be countered by the fact that much of the outstanding borrowing is accrued interest. And that interest still carries the fixed rate taken out years ago – some as high as 8 percent. Meanwhile, our government borrows for ten years at a rate below 1 percent!

No matter what approach, the humongous student loan issue is likely to be near the top of the new administration’s agenda, following only the immediate need to deal with distribution of a Covid vaccine.

So if you’re one of those students – or their families – overwhelmed with student loan debt, take a deep breath and wait a few months. After ignoring the burden of this debt for many years, something will happen soon. And that’s the Savage Truth.



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