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 last student loan debt statistics show that 45 million borrowers collectively owe $ 1.6 trillion in student loan debt. Today, according to Make Lemonade, student loan debt is the second highest category of consumer debt behind mortgages. Certainly, the financial situation of each borrower is unique. Proponents of large-scale student loan cancellation cite the increase in total student loan debt, the impact on family formation and homeownership, the high rejection rate, among others. cancellation of student loans, the difficulty of paying off student loans in bankruptcy, and the challenges with student loan managers.
1. Only 8% of borrowers owe more than $ 100,000.
Despite the headlines, research shows the average student loan balance is smaller than you might think. The average student debt is around $ 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 higher education.
Student loan debt is only half the unpaid balance. Based on this research, the history of student debt can be viewed from another perspective. About 48% of all outstanding student loan debt comes from graduate school. Higher education debt is associated with higher incomes and lower student loan default rates.
3. Student loan borrowers who owe less than $ 5,000 default the most.
Popular wisdom suggests that borrowers who owe the most student loans default at a higher rate. Not true. It is the borrowers with the lowest balances – many of whom have not graduated, or are unemployed or underemployed – who are most lacking.
4. Most students graduate with little or no debt.
Despite the headlines, this may seem surprising. Consider these two statistics on student debt: a) 30% of graduate students have no student debt; and b) 23% of graduates have less than $ 20,000 in student debt.
How to repay student loans
Whether you are for or against student loan cancellation, you need a student loan repayment strategy. Here is a useful framework for repaying 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 fallen to 1.9% and are now among the lowest in recent memory.
Here is an example of how much money you could save with this student loan refinance calculator. Suppose you have student loans with a weighted average interest rate of 8% payable over 10 years and you can refinance those student loans with a private lender at 3%. If you have $ 70,000 in student loans, you could save $ 174 each month and $ 20,804 in total.
2. Consolidate student loans
Federal Student Loan Consolidation allows you to combine your existing federal student loans into one direct consolidation loan. Unfortunately, the federal consolidation of student loans does not not reduce your interest rate or monthly payment. Your interest rate is equal to a weighted average of your existing federal student loans, rounded up up to the nearest 1/8%.
3. Join an income-based repayment plan
Income-based repayment plans such as PAYE, REPAYE, and IBR are only available for federal student loans. Your monthly payment is based on 10-15% of your discretionary income as well as family size and state of residence. You can also receive a student loan forgiveness, but you are liable for income tax on the forgiven amount.
4. Get a student loan discount
The Public service loan forgiveness program is a federal program that waives federal student loans for borrowers who are full-time employed in the public service or not for profit and who make 120 qualifying one-time payments over ten years. Forgiveness through this program is not subject to income tax.
Here’s a recap:
- Student loan refinancing = lower interest rate, pay off student loans faster
- Federal Consolidation = same interest rate, organize student loans
- Income-based reimbursement = lower monthly payment, student loan discount
- Cancellation of public service loan = lower monthly payment, student loan discount