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Do You Really Need Student Loan Forgiveness?

Do you really need student loan forgiveness? Read these facts and judge for yourself.

Here’s what you need to know – and what to do about it.

Student Loans: 4 Surprising Facts

The latest student loan debt statistics show that 45 million borrowers collectively owe $1.6 trillion of student loan debt. Today, according to Make Lemonade, student loan debt is the second highest category of consumer debt behind mortgages. Certainly, each borrower’s financial situation is unique. Supporters of wide-scale student loan forgiveness cite, among other issues, the increase in total student loan debt, the impact on family formation and home ownership, the high rejection rate for student loan forgiveness, the difficulty of student loan discharge in bankruptcy, and the challenges with student loan servicers.

According to research from Brookings, the state of student loans may surprise you:

1. Only 8% of borrowers owe more than $100,000.

Despite the headlines, research shows that the average student loan balance is smaller than you may think. The average student loan debt is about $30,000. Borrowers who owe more than $100,000 represent a relatively small percentage of all student loan borrowers.

2. 48% of all student loan debt is for graduate school.

College student loan debt is only half the outstanding balance. Based on this research, the student loan debt story may be viewed through an alternative lens. Approximately 48% of all outstanding student loan debt is from graduate school. Graduate school debt is associated with higher income and lower student loan default rates.

3. Student loan borrowers who owe less than $5,000 default the most.

Common wisdom suggests that borrowers who owe the most student loans would default at a higher rate. Not true. It’s borrowers with the lowest balances – many of whom didn’t graduate, or are unemployed or underemployed – who default the most.

4. Most college students graduate with little to no debt.

Despite the headlines, that may sound surprising. Consider these two student loan debt statistics: a) 30% of college students graduate with no student loan debt; and b) 23% graduate with less than $20,000 of student loan debt.

How To Pay Off Student Loans

Whether you’re for or against student loan forgiveness, you need a student loan repayment strategy. Here’s a helpful framework to pay off student loans.

1. Refinance student loans

The best way to pay off student loans faster is to refinance student loans. Student loan refinancing rates have dropped to as low as 1.99% and are now among the lowest in recent memory.

Here’s an example of how much money you could save with this student loan refinance calculator. Let’s assume that you have student loans at an 8% weighted average interest rate payable over 10 years and you can refinance those student loans with a private lender at 3%. If you have $70,000 of student loans, you could save $174 each month and $20,804 total.

2. Consolidate student loans

Federal student loan consolidation enables you to combine your existing federal student loans into a single Direct Consolidation Loan. Unfortunately, federal student loan consolidation does not lower your interest rate or monthly payment. Your interest rate is equal to a weighted average of your existing federal student loans, rounded up to the nearest 1/8%. 

3. Enroll in an income-driven repayment plan

Income-driven repayment plans such as PAYE, REPAYE and IBR are available for federal student loans only. Your monthly payment is based on 10-15% of your discretionary income as well as family size and state of residency. You also can receive student loan forgiveness, but you’re liable for income tax on the amount forgiven.

4. Get student loan forgiveness

The Public Service Loan Forgiveness program is a federal program that forgives federal student loans for borrowers who are employed full-time public service or nonprofit job who make 120 eligible on-time payments over ten years. Forgiveness through this program is not subject to income tax.

Here’s a recap:

  1. Student loan refinancing = lower interest rate, pay off student loans faster
  2. Federal consolidation = same interest rate, organize student loans
  3. Income-driven repayment = lower monthly payment, student loan forgiveness
  4. Public service loan forgiveness = lower monthly payment, student loan forgiveness
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