U.S. Weighs Student Loan Forgiveness

The current tab for student loan debt in the United States is $1.6 trillion. Most individuals don’t owe the federal government huge sums of money: 14 million borrowers owe $10,000 or less, while less than 3.5 million borrowers owe $200,000 or more. Many of those students in the latter group may have pursued a higher education degree en route to a high-earning career such as doctor or lawyer.¹

This brings up an interesting conundrum, because according to some researchers, forgiving student loan debt may benefit wealthier borrowers more than low- and middle-income borrowers. A recent paper by two finance professors concluded that student loan balance forgiveness would be a regressive initiative. In other words, the top 10% of students who owe the most money would receive as much loan forgiveness as the bottom 30% combined.²
Students aren’t the only ones facing outstanding student loan balances. Parent Plus loans offer additional funds to parents to help pay for their children’s higher education. In 2016, more than 200,000 families who made less than $40,000 a year took out a Parent Plus loan (an increase of more than one-third since 2008).³ Some parents choose to pay their children’s student loans for them so they don’t have to start off adult life in debt. However, this can make it more difficult for parents to save for their own retirement.

If you’re caught up in this type of quandary or thinking about how you’ll help children pay for college while saving for your retirement, give us a call. We can explore insurance options that offer the flexibility for positioning assets for today’s expenses and tomorrow’s financial confidence.

The new presidential administration has signaled interest in moving forward with some form of student loan forgiveness. For now, President-elect Joe Biden’s plan proposes three steps related to federal student loans: 1) canceling up to $10,000 of federal student loan debt; 2) reducing the threshold for income-based repayment to 5% of discretionary income from the current 10%; and 3) extending the student loan forbearance deadline (presently set to end Jan. 31, 2021) due to the impact of the coronavirus.⁴

In the meantime, some companies are exploring ways to offer student loan repayment assistance as a benefit. After all, in the quest for a skilled and knowledgeable workforce, they recognize the need to maintain a pool of qualified workers. The benefit can be a sought-after perk and effective recruitment tool to attract top talent.⁵

Some employers are looking at other ways to help employees pay off student debt. For example, one hospital is allowing its workers to convert unused vacation time into cash value to pay down student loans. Instead of leaving paid-time-off (PTO) days on the table, workers can request their employer make a comparable contribution toward their student loan debt.⁶

As the U.S. wrestles with this question, the reality is that the cost of a college education has risen much faster than the cost of living and wages.⁷ Furthermore, when an entire generation of young adults must delay buying a house or even starting a family, this can slow down the normal level of consumerism that drives the economy.⁸

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¹ Joy Wiltermuth. Marketwatch. Dec. 15, 2020. “Cancel student debt? This chart breaks down who owes what.” https://www.marketwatch.com/story/cancel-student-debt-this-chart-breaks-down-who-owes-what-11608064316.

Accessed Dec. 17, 2020.

² Knowledge@Wharton. Dec. 15, 2020. “How Student Loan Forgiveness Could Increase Inequality.” https://knowledge.wharton.upenn.edu/article/how-student-loan-forgiveness-could-increase-inequality/. Accessed Dec. 17, 2020.

³ Meredith Kolodner, The Hechinger Report. NBC News. Nov. 19, 2020. “Parent Plus loans are burying families in college debt.” https://www.nbcnews.com/news/education/parent-plus-loans-are-burying-families-college-debt-n1125391. Accessed Dec. 17, 2020.

⁴ Brian O’Connell. Fox Business. Dec. 16, 2020. “These 3 big student loan changes could be in store under Biden.” https://www.foxbusiness.com/money/student-loan-changes-biden. Accessed Dec. 17, 2020.

⁵ Simon Coxeter. Mercer. Feb. 27, 2020. “5 Employee Financial Wellness Trends: What to Watch.” https://www.mercer.com/our-thinking/financial-wellness-trends-2019.html. Accessed Dec. 17, 2020.

⁶ Joanne Finnegan. FierceHealthcare. Aug. 1, 2019. “Hospital allows employees to exchange unused paid time off to help pay off student loan debt.” https://www.fiercehealthcare.com/practices/hospital-allows-employees-to-exchange-unused-paid-time-off-to-help-pay-off-student-loan. Accessed Dec. 17, 2020.

⁷ Dante Chinni and Sally Bronston. NBC News. March 17, 2019. “The real college crisis: Student debt drags down economy.” https://www.nbcnews.com/politics/meet-the-press/real-college-crisis-student-debt-drags-down-economy-n984131. Accessed Dec. 23, 2020.

⁸ Briana Boyington and Emma Kerr. U.S. News & World Report. Sept. 17, 2020. “20 Years of Tuition Growth at National Universities.” https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities. Accessed Dec. 23, 2020.