What is this student loan forgiveness application?
In early July, the United States Education Department, under President Joe Biden, had canceled nearly $56 million in student loan forgiveness application. For an estimated 2,000 borrowers, giving the administration an estimated total of 1.5 billion$ erased from loans. President Joe Biden’s campaign was built on and comprised of, an attempt to bring ambitious changes for higher education. And as well as relieving massive amounts of debt off the students who had taken those loans. In the 100 days, the Biden administration has been in control, they have managed to relieve students of a massive burden. And as well as the lay groundwork for an act that, if successful, could be of immense importance to students who will carry their education further in the future.
Loan Forgiveness Plan
Biden’s proposals, which also include plans for additional types of loan forgiveness, may or may be passed as a law, depending on congress. The bills that are passed could have significant change from the time of passing to then. Biden’s staff had repeated constantly the president’s support for Congress to immediately cancel $10,000 of federal student loan debt per person as part of the COVID-19 relief. That amount could wipe out debt completely for nearly 15 million borrowers alone, who owe $10,000 or less, according to federal data. However, the majority of student loan borrowers have more than $10,000 in debt. Importantly, this student loan cancellation will be tax-free to the student loan borrowers, bringing upon no further fees anyone would have to pay to apply.
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Recent updates on the Plan
Democratic leaders however criticized this bill and requested that the loan amount be changed from 10,000$ to 50,000$. And as a majority of student loan debt is above that of what they are canceling. The U.S. Department of Education and the Justice Department are reviewing whether the President has the legal authority to cancel up to $50,000 in federal student loan debt through executive action. There has been no recent update as to when this review will be issued. There may be delays because Congress has not yet informed any advisor or representative of either department. Biden student loan forgiveness program will be targeted, however, regardless of whether it is implemented through executive action by the President, or a bill passed through congress. Borrowers should beware of student loan scams that promise debt forgiveness, in exchange for a fee. Clear instructions will be provided by the department of education when any further developments have been made.
How effective is this plan?
A group of people on social media criticized Biden’s student loan cancellation. While they recognized the magnitude of the headline number of $1 billion, they mentioned that the actual amount of student loan forgiveness paled in comparison to both the amount of outstanding student loan debt and the aggregate numbers of student loan borrowers. For example, the latest student loan debt statistics show that 45 million borrowers collectively owe $1.7 trillion of student loan debt. On a percentage basis, $1 billion of student loan forgiveness equates to 0.06% of all student loans outstanding. Similarly, 72,000 student loan borrowers benefit about 0.2% of all student loan borrowers. In short, stating that this bill will only benefit a small percentage of the student population.
What is the Current Student Debt Position?
Eliminating $10,000 of debt would help 15.3 million borrowers completely wipe out their outstanding federal student debt. The US Department of Education’s Office of Federal Student Aid has outstanding debt figures for federal debt borrowers. Those who took out Direct Loans, Federal Family Education Loans, and Perkins Loans. Based on fourth-quarter in 2020 data, loan forgiveness of $10,000 would mean complete debt cancellation for 33.6% of borrowers. Who has an outstanding debt of less than $10,000 in federal student loans? It would also benefit the 9.6 million who owe between $20,000 to $40,000. This debt group with the largest number of borrowers. However, researchers from the Centre for American Progress noted in their own analysis of how many borrowers would have their debt completely eliminated using last year’s figures that these shares may actually be lower “because some individuals who currently appear to have low debt levels are in school and are thus likely to end up with higher loan balances as they continue their studies.”
When the news first broke out, the reaction of Americans, especially students, was ecstatic. Democrats believed that this will not only help students. But also people of different demographics such as households with little to no income, families of diverse races or ethnicities. Ans also as some are not offered citizenship although having lived in the United States, single-parent households, etc. While it is a win for many borrowers. It isn’t a sign that broad-based student loan forgiveness applications will necessarily come anytime soon, experts say.
A final group of people on social media say that this student loan cancellation is an unfair wealth transfer that sticks taxpayers with the bill. They say that student loan cancellation isn’t free; it’s funded by taxpayers. Some social media users question. Why taxpayers must bail out student loan borrowers who made bad decisions to attend for-profit schools, for example. Others ask why there should be wide-scale student loan forgiveness for some borrowers when millions of other borrowers duly paid off their student loans by making financial sacrifices and, in some cases, working multiple jobs. Do they say that there are several reasons why student loans shouldn’t be canceled? And they also don’t want taxpayers paying for student loan forgiveness applications when the vast majority of Americans either don’t have student loans or didn’t attend college.