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Student Loan Debt Essays

Student loan debt essay topics and outline examples, essay title 1: the impact of student loan debt on higher education.

Thesis Statement: The growing burden of student loan debt has far-reaching consequences, affecting not only individual borrowers but also the accessibility and affordability of higher education in the United States.

• Introduction
• Rising Student Loan Debt Levels
• Barriers to Accessing Higher Education
• The Impact on Career Choices and Financial Stability
• Potential Solutions and Policy Reforms

Essay Title 2: The Psychological and Emotional Toll of Student Loan Debt

Thesis Statement: Student loan debt can take a severe psychological and emotional toll on borrowers, affecting their mental health, relationships, and overall well-being.

• The Stress and Anxiety Associated with Debt
• Impact on Personal Relationships and Life Choices
• Strategies for Coping with Student Loan Debt Stress
• The Need for Mental Health Support

Essay Title 3: Exploring Solutions to the Student Loan Debt Crisis

Thesis Statement: Addressing the student loan debt crisis requires a multifaceted approach, including policy reforms, financial literacy education, and innovative repayment options, to provide relief for borrowers and future generations.

• Policies Aimed at Reducing Student Loan Debt
• Empowering Borrowers Through Financial Education
• Innovative Repayment Plans and Loan Forgiveness Programs
• Ensuring Affordability and Accessibility of Higher Education

10 Student Loan Debt Essay Topics

Exploring solutions to the student loan debt crisis is crucial for mitigating the financial burden on graduates and ensuring access to higher education. The following essay topics delve into various facets of this issue, presenting opportunities for problem-solution exploration:

• The Role of Federal Policy in Mitigating Student Loan Debt
• Innovative Repayment Plans.
• Private Sector Solutions for Student Loan Debt
• Educational Reform for Affordable Tuition
• Financial Literacy and Student Loan Debt
• Community and Technical Colleges as a Solution to High Student Loan Debt
• The Impact of Scholarship Expansion on Student Loan Debt
• Bankruptcy Law Reforms to Address Student Loan Debt
• Public Service Loan Forgiveness Program Enhancements
• Technology-Based Solutions for Student Loan Management

Student loan debt in the United States has reached unprecedented levels, with millions of Americans grappling with the financial and emotional strain of repaying their education loans. This crisis not only hampers individual financial growth but also has broader economic implications, restricting consumer spending and contributing to wealth inequality.

Problem-solution essays on student loan debt offer a platform to investigate the roots of this issue and propose innovative solutions. From federal policy reforms to grassroots financial literacy programs, these essays explore multifaceted approaches to alleviate the student loan debt burden. By examining successful case studies and drawing on expert analyses, students can present comprehensive strategies that address both the immediate challenges of loan repayment and the systemic issues of higher education financing. Through such discourse, we can begin to envision a future where higher education is accessible and affordable for all, free from the shackles of debilitating debt. For those looking for problem solution essay examples offered free , ample resources are available to guide and inspire comprehensive solutions.

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The Issue of African American College Students Loan Debt

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Student loan debt refers to the financial obligation incurred by individuals who borrow funds specifically for educational purposes. It is a type of debt that students accumulate to cover the costs of tuition, fees, books, and living expenses during their pursuit of higher education. Student loan debt typically consists of borrowed money from government-based programs or private lending institutions, which students must repay over a specified period of time, often with interest.

Student loan debt in the United States has reached staggering levels and has become a pressing issue in today's society. As of recent data, the total student loan debt in the US exceeds trillions of dollars, making it one of the largest sources of debt for Americans. Many factors contribute to the current state of student loan debt, including rising tuition costs, limited access to grants and scholarships, and the increasing number of students pursuing higher education. The burden of student loan debt has far-reaching consequences for individuals and the economy as a whole. Many borrowers struggle to make timely repayments, leading to financial strain, delayed milestones such as homeownership or starting a family, and limited career choices. The ripple effects extend to the broader economy, affecting consumer spending, saving rates, and overall economic growth. Efforts to address the student loan debt crisis are underway, including income-driven repayment plans, loan forgiveness programs, and increased financial literacy initiatives. However, the magnitude of the problem necessitates further attention and comprehensive solutions to ensure that higher education remains accessible and affordable while mitigating the long-term impact of student loan debt on individuals and society.

Student loan debt has a significant historical context that spans several decades. The roots of the issue can be traced back to the mid-20th century when higher education became increasingly expensive, leading to a surge in the need for student loans. In the United States, the establishment of the Federal Student Aid program in the 1960s aimed to provide financial assistance to students pursuing higher education. However, the situation evolved over time, and the accumulation of student loan debt became a pressing concern. During the 1980s and 1990s, tuition fees continued to rise, and the availability of federal grants decreased. As a result, students increasingly relied on loans to finance their education. The early 2000s witnessed a further expansion of the student loan market, with private lenders entering the scene alongside the government-backed loans. This expansion brought about changes in lending practices and the increasing burden of debt on students.

The influence of student loan debt extends beyond the individual level and has a profound impact on various aspects of society. Firstly, it affects the financial well-being of borrowers, often causing stress, limited financial freedom, and delayed milestones such as homeownership or retirement savings. The burden of debt can also impact mental health, creating anxiety and depression among borrowers. On a broader scale, student loan debt influences the economy. High levels of debt can hinder consumer spending and savings rates, affecting economic growth. Graduates burdened with student loans may delay or forego major life decisions, such as starting a business or pursuing advanced degrees, which can impede innovation and entrepreneurial activities. Moreover, student loan debt exacerbates social and economic inequalities. Those from disadvantaged backgrounds may face additional challenges in accessing higher education due to financial constraints, widening the opportunity gap. The burden of debt can also perpetuate intergenerational poverty, as individuals struggle to accumulate wealth and provide for future generations.

Public opinion on student loan debt is multifaceted and varies among individuals. However, there are some common themes that emerge. Many people acknowledge the growing concern surrounding student loan debt and the challenges it poses for borrowers. There is a general recognition that the rising cost of education and the increasing reliance on loans have created a significant burden for students and graduates. Public opinion is often divided on the responsibility of borrowers versus the role of educational institutions and the government. Some argue that borrowers should take personal responsibility for their loans, while others believe that the education system and policymakers should be held accountable for the affordability and accessibility of higher education. There is growing support for measures aimed at addressing student loan debt, such as loan forgiveness programs, income-based repayment plans, and efforts to lower interest rates. Many individuals believe that these initiatives can provide relief to borrowers and alleviate the financial stress associated with student loans.

1. As of 2021, the total student loan debt in the United States exceeds $1.7 trillion, making it the second-largest consumer debt category after mortgages. 2. Approximately 45 million Americans carry student loan debt, with an average debt per borrower of around $38,000. 3. The average monthly student loan payment for borrowers aged 20 to 30 is $393, which can significantly impact their financial stability and ability to save or invest. 4. Student loan debt is not only prevalent among recent graduates. Around 14% of borrowers are over the age of 50, often carrying debt from their own education or supporting their children's education. 5. Student loan default rates remain a concern. As of 2021, the federal student loan default rate was around 9%, indicating the financial challenges faced by some borrowers. 6. High levels of student loan debt can hinder homeownership rates. Studies suggest that the burden of student loans can delay or deter individuals from purchasing homes, impacting the housing market. 7. Certain professions, such as doctors and lawyers, often accumulate substantial student loan debt due to the extended education required for their careers.

The topic of student loan debt is of paramount importance as it addresses a pressing financial and societal issue that affects millions of individuals in the United States. Writing an essay on student loan debt allows us to delve into the multifaceted consequences it poses on borrowers and the broader economy. The staggering amount of outstanding debt, coupled with rising tuition costs, presents a significant barrier to accessing higher education and achieving economic mobility. Furthermore, the burden of student loan debt impacts borrowers' financial well-being, hindering their ability to save, invest, and contribute to the economy. Exploring the public's opinion, representation in media, and potential policy solutions can provide valuable insights into the urgency of addressing this crisis. By discussing student loan debt, we foster a deeper understanding of the challenges faced by borrowers and encourage dialogues that may lead to effective measures for easing this financial strain and supporting the pursuit of education.

1. Akers, B., & Chingos, M. M. (2014). Is a student loan crisis on the horizon? The Brookings Institution. https://www.brookings.edu/research/is-a-student-loan-crisis-on-the-horizon/ 2. Baum, S., & O'Malley, M. (2003). College on credit: How borrowers perceive their education debt. The College Board. https://files.eric.ed.gov/fulltext/ED494509.pdf 3. Dynarski, S. M. (2014). Building the stock of college-educated labor. Journal of Labor Economics, 32(1), 1-26. https://doi.org/10.1086/674012 4. Houle, J. N. (2014). Disparities in debt: Parents' socioeconomic resources and young adult student loan debt. Sociology of Education, 87(1), 53-69. https://doi.org/10.1177/0038040713514014 5. Jackson, K. M. (2018). The impact of student loan debt on job satisfaction outcomes. Journal of Student Financial Aid, 48(1), 29-52. https://doi.org/10.4148/2572-456X.1018 6. Litten, L. H., & Ackerman, D. B. (2019). A comprehensive approach to student loan debt counseling. Journal of Financial Counseling and Planning, 30(1), 43-57. https://doi.org/10.1891/1052-3073.30.1.43 7. Looney, A., & Yannelis, C. (2015). A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising loan defaults. Brookings Papers on Economic Activity, 2015(1), 1-89. https://doi.org/10.1353/eca.2015.0001 8. Lusardi, A., Schneider, D. J., & Tufano, P. (2011). Financially fragile households: Evidence and implications. Brookings Papers on Economic Activity, 2011(2), 83-134. https://doi.org/10.1353/eca.2011.0016 9. Scott-Clayton, J. (2019). The looming student loan default crisis is worse than we thought. Brookings Institution. https://www.brookings.edu/research/the-looming-student-loan-default-crisis-is-worse-than-we-thought/ 10. Zafar, B. (2013). Borrowing constraints and the returns to schooling. Annual Review of Economics, 5(1), 347-365. https://doi.org/10.1146/annurev-economics-072412-133425

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A smarter way to solve the student debt problem

Blanket loan forgiveness less effective than helping those who need it most, research suggests.

Editor’s Note: This piece was written by Constantine Yannelis, an assistant professor of finance at the University of Chicago Booth School of Business, and shared by Chicago Booth Review . The essay is based on testimony Yannelis submitted to the U.S. Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Economic Policy in April 2021.

Education is the single highest-return investment most Americans will make, so getting our system of higher-education finance right is fundamentally important for U.S. households and the economy.

A key point in the student-loan debate is that the outcomes of borrowers vary widely. Undeniably, a significant number of borrowers are struggling, and are sympathetic candidates for some kind of relief. Student-loan balances have surged over the past decades. According to the New York Fed, last year student loans had the highest delinquency rate of any form of household debt.

Most student borrowers end up as higher earners who do not have difficulties repaying their loans. A college education is, in the vast majority of cases in America, a ticket to success and a high-paying job. Of those who struggle to repay their loans, a large portion attended a relatively small number of institutions—predominantly for-profit colleges.

The core of the problem in the student-loan market lies in a misalignment of incentives for students, schools, and the government. This misalignment comes from the fact that borrowers use government loans to pay tuition to schools. If borrowers end up getting poor jobs, and they default on their loans, schools are not on the hook—taxpayers pay the costs. How do we address this incentive problem? There are many options, but one of the most commonly proposed solutions is universal loan forgiveness.

Various forms of blanket student-loan cancellation have been suggested, but all are extremely regressive, helping higher-income borrowers more than lower-income ones. This is primarily because people who go to college tend to earn more than those who do not go to college, and people who spend more on their college education—such as those who attend medical and law schools—tend to earn more than those who spend less on their college education, such as dropouts or associate’s degree holders.

My own research with Sylvain Catherine of the University of Pennsylvania demonstrates that most of the benefits of a universal-loan-cancellation policy in the United States would accrue to high-income individuals, those in the top 20 percent of the earnings distribution, who would receive six to eight times as much debt relief as individuals in the bottom 20 percent of the earnings distribution. These basic patterns are true for capped forgiveness policies that limit forgiveness up to $10,000 or $50,000 as well.

Another problem with capped student-loan forgiveness is that many struggling borrowers will still face difficulties. A small number of borrowers have large balances and low incomes. Policies forgiving $10,000 or $50,000 in debt will leave their significant problems unaddressed.

While income phaseouts—policies that limit or cut off relief for people above a certain income threshold—make forgiveness less regressive, they are blunt instruments and lead to many individuals who earn large amounts over their lives, such as medical residents and judicial clerks, receiving substantial loan forgiveness.

A fact that is often missed in the policy debate is that we already have a progressive student-loan forgiveness program, and that is income-driven repayment.

If policy makers want to make sure that funds get into the hands of borrowers at the bottom of the income distribution in a progressive way, blanket student-loan forgiveness does not accomplish this goal. Rather, the policy primarily benefits high earners.

While I am convinced from my own research that student-loan forgiveness is regressive, this is also the consensus of economists. The Initiative on Global Markets at Chicago Booth asked a panel of prominent economists to weigh in on this statement: “Having the government issue additional debt to pay off current outstanding loans would be net regressive.” The panel included economists from leading institutions from both the left and the right. The results of the survey were telling. Not a single economist disagreed with the idea that student-loan forgiveness is regressive. This is because the facts are clear—to borrow a phrase commonly used, “The science is settled”—student-loan forgiveness is a regressive policy that mostly benefits upper-income and upper-middle-class individuals.

Another facet of this policy issue is the effect of student-loan forgiveness on racial inequality. One of the most distressing failures of the federal loan program is the high default rates and significant loan burdens on Black borrowers. And student debt has been implicated as a contributor to the Black-white wealth gap. However, the data show that student debt is not a primary driver of the wealth gap, and student-loan forgiveness would make little progress closing the gap but at great expense. The average wealth of a white family is $171,000, while the average wealth of a Black family is $17,150. The racial wealth gap is thus approximately $153,850. According to our paper, which uses data from the Survey of Consumer Finances, and not taking into account the present value of the loan, the average white family holds $6,157 in student debt, while the average Black family holds $10,630. These numbers are unconditional on holding any student debt.

Thus, if all student loans were forgiven, the racial wealth gap would shrink from $153,850 to $149,377. The loan-cancellation policy would cost about $1.7 trillion and only shrink the racial wealth gap by about 3 percent. Surely there are much more effective ways to invest $1.7 trillion if the goal of policy makers is to close the racial wealth gap. For example, targeted, means-tested social-insurance programs are far more likely to benefit Black Americans relative to student-loan forgiveness. For most American families, their largest asset is their home, so increasing property values and homeownership among Black Americans would also likely do much more to close the racial wealth gap. Still, the racial income gap is the primary driver of the wealth gap; wealth is ultimately driven by earnings and workers’ skills—what economists call human capital. In sum, forgiving student-loan debt is a costly way to close a very small portion of the Black-white wealth gap.

How can we provide relief to borrowers who need it, while avoiding making large payments to well-off individuals? There are a number of policy options for legislators to consider. One is to bring back bankruptcy protection for student-loan borrowers.

Another option is expanding the use of income-driven repayment. A fact that is often missed in the policy debate is that we already have a progressive student-loan forgiveness program, and that is income-driven repayment (IDR). IDR plans link payments to income: borrowers typically pay 10–15 percent of their income above 150 percent of the federal poverty line. Depending on the plan, after 20 or 25 years, remaining balances are forgiven. Thus, if borrowers earn below 150 percent of the poverty line, as low-income individuals, they never pay anything, and the debt is forgiven. If borrowers earn low amounts above 150 percent of the poverty line, they make some payments and receive partial forgiveness. If borrowers earn a high income, they fully repay their loan. Put simply, higher-income people pay more and lower-income people pay less. IDR is thus a progressive policy.

IDR plans provide relief to struggling borrowers who face adverse life events or are otherwise unable to earn high incomes. There have been problems with the implementation of IDR plans in the U.S., but these are fixable, including through recent legislation. Many countries such as the United Kingdom and Australia successfully operate IDR programs that are administered through their respective tax authorities.

Beyond providing relief to borrowers, which is important, we could do more to fix technical problems and incentives. We could give servicers more tools to contact borrowers and inform them of repayment options such as IDR, and we could also incentivize servicers to sign more people up for an IDR plan. But while we may be able to make some technical fixes, servicers are not the root of the problem in the student-loan market: a small number of schools and programs account for a large portion of adverse outcomes.

To fix this, policy makers can also directly align the incentives for schools and borrowers. For example, Brazil, which has had similar problems with its student-loan program, recently gave schools skin in the game by requiring them to pay a fee based on dropout and default rates. This helped align the incentives of the schools and the student borrowers. Making revenues go directly to schools from IDR plans, or implementing income-share agreements in which individuals pay an uncapped portion of their income, could also help align the incentives of schools, students, and taxpayers.

Federal student loans are an important part of college financing and intergenerational mobility. The root of our student-loan crisis is a misalignment of incentives. Since the problem has been so slow moving and continuous, I like the analogy of a frog slowly boiling in a pot of water over a flame. Policies such as student-debt cancellation are not extinguishing the flame—they aren’t fixing the incentive problem. All they do is move the frog into a slightly cooler pot of water. And if we don’t fix the core of the problem, even if we forgive $50,000 of debt for current borrowers, balances will continue to grow, and we will be facing a similar crisis in 10 or 20 years.

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Is it fair to forgive student loans? Examining 3 of the arguments of a heated debate

Scott Horsley

Student loan borrowers stage a rally in front of The White House on Aug. 25 to celebrate President Biden cancelling student debt. The plan has sparked heated debate, including about its economic fairness. Paul Morigi/Getty Images for We the 45m hide caption

Student loan borrowers stage a rally in front of The White House on Aug. 25 to celebrate President Biden cancelling student debt. The plan has sparked heated debate, including about its economic fairness.

President Biden's plan to forgive hundreds of billions of dollars in student debt is sparking heated debate.

Biden last week announced plans to forgive up to $20,000 in federal student loan debt for Pell Grant recipients and up to $10,000 for others who qualify.

The news will provide relief for borrowers at a time when the cost of higher education has surged.

Student loan forgiveness is politically popular. But not all Democrats are on board

But critics are questioning the fairness of the plan and warn about the potential impact on inflation should the students with the forgiven loans increase their spending.

Here are three key arguments – for and against the wisdom of Biden's decision.

Raising living standards or adding fuel to inflation?

Undoubtedly, student debt is a big burden for a lot of people.

Under Biden's plan, 43 million people stand to have their loan payments reduced, while 20 million would have their debt forgiven altogether.

People whose payments are cut or eliminated should have more money to spend elsewhere – maybe to buy a car, put a down payment on a house or even put money aside for their own kids' college savings plan. So the debt forgiveness has the potential to raise the living standard for tens of millions of people.

Critics, however, say that additional spending power would just pour more gasoline on the inflationary fire in an economy where businesses are already struggling to keep up with consumer demand.

Inflation remains near its highest rate in 40 years and the Federal Reserve is moving to aggressively raise interest rates in hopes of bringing prices back under control.

Not all economists believe the debt forgiveness will do much to fuel inflation.

Debt forgiveness is not like the $1200 relief checks the government sent out last year, which some experts say added to inflationary pressure. Borrowers won't suddenly have $20,000 deposited in their bank accounts. Instead, they'll be relieved of making loan payments over many years.

President Biden announces student loan relief in the Roosevelt Room of the White House in Washington, D.C. on Aug. 24. Olivier Douliery/AFP via Getty Images hide caption

President Biden announces student loan relief in the Roosevelt Room of the White House in Washington, D.C. on Aug. 24.

Because the relief is dribbled out slowly, Ali Bustamante, who's with left-leaning Roosevelt Institute says Biden's move won't move the needle on inflation very much.

"It's just really a drop in the bucket when it come to just the massive level of consumer spending in our very service- and consumer-driven economy," he says.

The White House also notes that borrowers who still have outstanding student debt will have to start making payments again next year. Those payments have been on hold throughout the pandemic.

Restarting them will take money out of borrower's pockets, offsetting some of the additional spending power that comes from loan forgiveness.

Helping lower income Americans or a sop to the rich?

Another big point of contention has to do with fairness.

Forgiving loans would would effectively transfer hundreds of billions of dollars in debt from individuals and families to the federal government, and ultimately, the taxpayers.

Some believe that transfer effectively penalizes people who scrimped and saved to pay for college, as well as the majority of Americans who don't go to college.

They might not mind subsidizing a newly minted social worker, making $25,000 a year. But they might bristle at underwriting debt relief for a business school graduate who's about to go to Wall Street and earn six figures.

Students from George Washington University wear their graduation gowns outside of the White House in Washington, D.C, on May 18. Economists worry President Biden's plan to forgive student loans could encourage more people to take on debt in the hopes of also being forgiven. Stefani Reynolds/AFP via Getty Images hide caption

Students from George Washington University wear their graduation gowns outside of the White House in Washington, D.C, on May 18. Economists worry President Biden's plan to forgive student loans could encourage more people to take on debt in the hopes of also being forgiven.

The White House estimates 90% of the debt relief would go to people making under $75,000 a year. Lower-income borrowers who qualified for Pell Grants in college are eligible for twice as much debt forgiveness as other borrowers.

But individuals making as much as $125,000 and couples making up to $250,000 are eligible for some debt forgiveness. Subsidizing college for those upper-income borrowers might rub people the wrong way.

"I still think a lot of this benefit is going to go to doctors, lawyers, MBAs, other graduates that have very high earnings potential and may even have very high earnings this year already," says Marc Goldwein senior policy director at the Committee for a Responsible Federal Budget.

Helping those in need or making college tuition worse?

Goldwein also complains that the loan forgiveness doesn't address the larger problem of soaring college tuition costs.

In fact, he suggests, it might make that problem worse — like a Band-Aid that masks a more serious infection underneath.

For years, the cost of college education has risen much faster than inflation, which is one reason student debt has exploded.

And now what? The question that follows Biden's student loan forgiveness plan

By forgiving some of that debt, the government will provide relief to current and former students.

But Goldwein says the government might encourage future students to take on even more debt, while doing little to instill cost discipline at schools.

"People are going to assume there's a likelihood that debt is canceled again and again," Goldwein says. "And if you assume there's a likelihood it's canceled, you're going to be more likely to take out more debt up front. That's going to give colleges more pricing power to raise tuition without pressure and to offer more low-value degrees."

The old rule in economics is when the government subsidizes something, you tend to get more of it. And that includes high tuition and college debt.

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For many of the 43 million Americans with federal student loan debt, President Joe Biden’s plan to forgive up to $20,000 in debt is unequivocally good news.

But in the days since the policy was announced, it has also led to pushback, debate, and controversy — arguments that are likely to be studied for months and adjudicated by researchers for years, if not decades.

There are two leading — and overlapping — criticisms of the loan forgiveness plan. One question is whether debt forgiveness is the right thing to do. It asks whether forgiving student loans is the best way to spend an estimated $500 billion , given that some, though not all, of those who benefit have college degrees and relatively high household incomes.

The other is about whether debt forgiveness is the right thing to do right now. If households freed from the burdens of their debts spend more money, it could drive inflation higher — meaning that the consequences of loan forgiveness would be borne by everyone, and soon. To dampen inflation, the Federal Reserve is actively trying to get consumers to spend less.

It’s unsurprising that Biden’s political opponents have raised these concerns. But the criticism has also extended to some economists who have served in previous Democratic administrations or consider themselves sympathetic to Biden’s goals. “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” Jason Furman, President Barack Obama’s chief economist, tweeted when Biden’s plan was announced.

Not all economists agree with Furman’s view . But the fact that the inflation debate is happening at all is a sign of how broader economic trends have shifted.

The push for student debt forgiveness was born a decade ago in the depths of the Great Recession, when even college graduates struggled to find work. Inflation was low and falling. It’s become reality under very different economic circumstances, and that shift is part of what’s fueling the current debate.

The first debate: Is loan forgiveness the right thing to do?

The Biden administration crafted its student debt forgiveness proposal in an attempt to avoid benefiting the wealthiest families. To be eligible for $10,000 in loan forgiveness, student debtors must have earned less than $125,000 (or $250,000 for a married couple) in the 2020 or 2021 tax years.

Students who receive Pell Grants to attend college — meaning they came from low-income families, overwhelmingly earning less than the median household income in the United States — are eligible for an additional $10,000 in debt relief. This is an extra boost for those who started higher education without the safety net of intergenerational wealth.

The proposal would entirely wipe out student debt for 20 million people — nearly half of the 43 million Americans who borrowed to pay for college and are still paying the loans back. An analysis from the Education Department found that almost 90 percent of the benefits would go to people earning less than $75,000 per year, though because any loans taken out before July 2022 are eligible for forgiveness, that figure includes current students and very recent graduates whose salaries could rise in the near future.

The reaction from Biden’s opponents has been to call forgiveness unfair, both to those who didn’t attend college and to those who already paid off their loans.

Senate Minority Leader Mitch McConnell, who would have perhaps the most to gain from a political backlash to the program, called the idea “a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt.”

This attitude is in line with how policymakers in the United States have typically viewed higher education. The federal government helps some students from poor families by offering Pell Grants that don’t have to be paid back, although the grant, which tops out at just under $7,000, means the majority of recipients still need loans . But the bulk of federal financial aid to students comes in the form of loans.

The American system of higher education finance is based on the idea that a college degree primarily benefits the individual who earns it. The federal government issues a small leg up by offering loans at a cheaper rate than a private bank would offer to an 18-year-old with no credit history or a young adult trying to support a family while earning a degree. (The current rate on an undergraduate student loan is just under 5 percent , compared to up to 14 percent from a private lender.)

A few assumptions underlie all of this: that most student loan borrowers are young people working toward bachelor’s degrees, that they will graduate, and that the degree will help them earn back more than enough to pay their debts. Hence the pushback against loan forgiveness: Why help out a 20-something who majored in philosophy at an expensive private college, instead of the 50-year-old next door with no degree at all?

But those assumptions are no longer always true. Biden’s plan is intended to fit the reality of the student loan program as it exists today. The lines between those who will benefit from debt forgiveness and those who are left on the sidelines are blurrier than blue-collar versus white-collar, working-class versus middle-class, old versus young.

One in five people with outstanding student loans is over age 50 , some of whom likely borrowed on their own behalf (including those who pursued graduate degrees) and some of whom took out loans to pay for their children’s education. Many student debtors are no longer young adults starting at a four-year college; they’re older and more likely to attend a community college or for-profit program. An analysis by Mark Huelsman, director of policy and advocacy at the Hope Center for College, Community and Justice at Temple University, found that almost 40 percent of those who entered college in the 2011-12 school year and took on student debt never earned a credential.

Forgiveness will be especially helpful to those in default — the terrifying Upside Down of the financial aid system, where, after at least 9 months of missed payments, the Education Department can garnish wages and even Social Security checks in order to get its money back. The typical defaulter did not graduate and owes just under $10,000 .

There are other versions of the fairness argument circulating. One holds that forgiveness is unfair to those who borrowed but paid off their debts — an argument that could be raised against any social program on behalf of those who were born too early to benefit from it.

The counterpoint to these critiques is that critics are holding student debt forgiveness to a fairness standard applied to few other government programs or benefits. Forgiveness could be life-changing for millions of people, especially those struggling with default, the argument goes, while hurting no one.

Which is where the other part of the critiques come in.

Is it the right thing to do right now?

The student debt forgiveness movement emerged about a decade ago from the crucible of the Great Recession. Students were borrowing more than ever to pay for college and, amid the cratering economy, were struggling to find jobs that would help them pay their loans back.

In 2012, the unemployment rate for bachelor’s degree holders was around 4.5 percent, and nearly 8 percent for college dropouts and those with two-year degrees. Interest rates were low. A prominent argument against student debt for the next eight years was that it was slowing down the economy: Young adults burdened by debt were being held back from buying homes, starting businesses, and spending money.

Few could foresee that by the time forgiveness became a reality, unemployment for bachelor’s degree recipients would have halved, interest rates would have more than doubled, and inflation would be the overriding economic concern. Even in 2019, when loan forgiveness became a serious issue in a Democratic primary campaign for the first time, inflation was rarely mentioned; by the 2020 election, with the economy contracting from the shock of the coronavirus pandemic, student debt forgiveness seemed to have a plausible path to becoming reality as a form of stimulus.

In the past year, though, things have changed. With consumer prices up 8.5 percent over a year ago, some economists now argue that debt cancellation is too big a risk. The concern is that, freed from loan debt or facing reduced payments, student borrowers will spend more at a time when the Federal Reserve is trying its best to get Americans to spend less and cool down the economy.

How much of an effect this will have — if it has one at all — is the subject of further debate.

The federal government paused repayment on most student loans during the pandemic, so millions of borrowers have not had to make a payment on their student loans in two years. The majority of student loan debtors will need to return to making some kind of payment in January, when the pause expires, even if it’s less than they would have had to pay before forgiveness.

The student loan pause was always supposed to end eventually, and it will in January. But for the past two years, the moratorium was extended multiple times, leading to an unusual situation: tens of millions of people owed student debt but didn’t have to make any payments.

Now, this situation is at the heart of the debate over inflation. When economists warn that student debt will drive up prices for everyone, what are they comparing it to? The current situation, where no one is making payments at all?

An analysis by Goldman Sachs economists found that the impact of forgiveness on inflation is likely to be offset by most borrowers resuming payments when the student loan pause ends in January. People who have had their loans forgiven will continue to pay what they’ve been paying for the past two years (nothing), meaning that their household spending should be unaffected. But people who owed more than Biden could forgive, or who earned too much to qualify for forgiveness, will have to resume making payments after two years of not doing so, meaning they’ll actually have less money to spend on everything else.

Or is the proper comparison an alternate path, where Biden allowed payments to resume for all loans, meaning that more people would owe more money per month than they will under the new plan?

Furman estimated that the loan forgiveness plan, even with the resumption of payments for most borrowers in January, could drive up inflation by 0.2 to 0.3 percentage points, compared to the alternative of resuming payments for everyone at their existing debt loads. If inflation continues to rise, prices will become more expensive for all households, meaning that American consumers broadly would pay for the consequences of debt forgiveness.

Ultimately, this argument about inflation is also tied up with the concerns about fairness. If student debt forgiveness drives inflation slightly higher, is that worth it?

Critics argue that it is not: “Student loan debt relief is spending that raises demand and increases inflation,” former Treasury Secretary Larry Summers tweeted last week. “It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”

But that position is not universal. “I am not in favor of framing student-loan policy as a lever for managing inflation,” Sue Dynarski, a Harvard professor, an expert on higher education finance, and a former forgiveness skeptic, wrote in the New York Times on Tuesday. “Eliminating food subsidies for poor families — SNAP, as the food stamp program is known today — would definitely slow the economy, but that doesn’t mean we should do it.”

Where do we go from here?

One thing virtually all sides of the debate agree on is that one-time forgiveness is not enough. It is, by design, a one-off — siblings from the same family who graduate from college a few years apart, having borrowed the same amount to pay for it, could end up with debt loads that differ by thousands of dollars.

The Biden administration is hoping to make income-based student loan repayment more generous, outlining changes that would require borrowers to pay 5 percent of discretionary income per month (down from 10 percent in the current program).

But there is currently no federal plan to actually make college cheaper for students, to reduce borrowing, or to hold colleges accountable for whether students can pay off their loans. That’s not for lack of ideas or for lack of trying. The Obama administration proposed rating colleges based on the “value” they provide to students, an attempt that ultimately went nowhere.

In 2016, both Bernie Sanders and Hillary Clinton called for the federal government to partner with states to make college tuition cheaper. It inspired many of the same debates that loan forgiveness has provoked — should college be subsidized for everyone, and if so, by how much? But the “free college” program was ultimately one of the first things dropped from Democrats’ legislative agenda.

The scope of Biden’s student debt forgiveness plan might seem radical. But by leaving the ultimate structure of how American higher education is paid for unchanged, it’s actually a less dramatic departure than any of the alternatives.

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Student debt forgiveness would impact nearly every aspect of people’s lives

Subscribe to global connection, stephen roll , stephen roll research assistant professor, social policy institute, brown school - washington university in st. louis jason jabbari , and jason jabbari research assistant professor - social policy institute at washington university in st. louis michal grinstein-weiss michal grinstein-weiss nonresident senior fellow - economic studies @michalgw.

May 18, 2021

Though the emergency relief measures passed in response to the COVID-19 pandemic allowed student loan borrowers to defer their loan payments, student loan debt burdens still loom large for millions of U.S. households. According to the Federal Reserve , the national student debt level in the fourth quarter of 2020 was $1.7 trillion spread across 45 million borrowers—the highest level on record. Given the size of the debt burden, it is perhaps unsurprising that the possibility of student loan forgiveness has become a major policy discussion.

Most recently, President Joe Biden called for $10,000 in student debt forgiveness, while others, such as Senator Elizabeth Warren, have called for as much as $50,000 in debt forgiveness. Some have even called for total debt forgiveness, which would represent a larger amount of spending than the cumulative spending on unemployment insurance over the last 20 years . In a recent poll from the Center for Responsible Lending, 63 percent of respondents supported permanently reducing student loan debt by $20,000. As policymakers grapple with this question, it is important to explore how debt forgiveness might relate to household behaviors.

A student loan forgiveness experiment

To examine the relationship between student debt forgiveness and household behaviors, researchers at the Social Policy Institute conducted a survey experiment that asked participants with student debt to imagine a scenario in which the federal government forgave some amount of their student debt, and then had these participants report on how this would affect their decisions and behaviors. Participants were randomly assigned to one of four conditions that featured different levels of student debt forgiveness:

• Condition 1: $5,000 of student debt forgiveness
• Condition 2: $10,000 of student debt forgiveness
• Condition 3: $20,000 of student debt forgiveness
• Condition 4: All student debt forgiven

Participants could then select different behaviors they would engage in if their student debt were forgiven. The response options were intended to capture a wide range of experiences like working less, changing purchasing behaviors, having children or getting married, saving for different purposes, or returning to school. In total, 1,009 respondents who reported having student debt participated in the experiment.

The amount of debt forgiven matters

We present the results from this experiment in Figure 1. Generally speaking, the most common ways people reported that they would change their behaviors after student debt forgiveness—regardless of the amount forgiven—concerned their balance sheets. Large proportions of student debt holders reported that they would pay down other debts, save more for emergencies, save for a down payment on a home, or save more for retirement.

Figure 1. The relationship between the amount of student debt forgiven and household behaviors

Source: Social Policy Institute

Note: These results are from a survey experiment in which student debt holders were randomly assigned to receive one of four levels of student debt forgiveness. The impacts of the different levels of debt forgiveness were estimated using logistic regression models that also controlled for the amount of student debt held by participants. N=1,009. The brackets on each bar represent the 95 percent confidence interval of each estimate.

Turning to the differences between experimental conditions, we see interesting patterns in the relationship between the amount of debt forgiven and household behaviors. In particular:

• The amount of student debt forgiven was not strongly associated with either working less or paying down other debts.
• Higher levels of student debt forgiveness were associated with higher reported rates of purchasing more/better food, making large purchases like a car or appliance, returning to school, and saving more for emergencies.
• Student debt holders only say they would save more for retirement if all their student debt were forgiven, which implies that many student debt holders would prioritize other behaviors over the long-term goal of saving for retirement.
• Student debt holders were also twice as likely to report that they would have a child if they received $10,000 of debt forgiveness or complete debt forgiveness as they would if they only received $5,000 of debt forgiveness ($20,000 of debt forgiveness did not produce a statistically significant difference from $5,000).
• Higher amounts of student debt forgiveness were associated with other investment behaviors like starting a business or savings for a down payment on a home, as well as a willingness to spend more on entertainment.

The proportion of debt forgiven matters, too

In Figure 2, we shift our focus away from the amount of debt forgiveness to the proportion of debt forgiveness. For this analysis, we converted the amount of forgiveness in each experimental condition to a percentage based on each participant’s reported amount of student debt. That is, someone with $20,000 of student debt assigned to the $5,000 forgiveness condition would have 25 percent of their student debt forgiven, whereas if that person were assigned to the $10,000 forgiveness condition, they would have 50 percent of their debt forgiven. Everyone assigned to Condition 4, as well as everyone assigned to a condition that offered more student debt forgiveness than the amount of debt they owed, were coded as having 100 percent of their student debt forgiven.

Figure 2. The relationship between the proportion of student debt forgiven and household behaviors

Note: These results are from a survey experiment in which student debt holders were randomly assigned to receive one of four levels of student debt forgiveness. The proportions were calculated by diving the amount of student debt held by the proposed amount of student debt forgiven. The impacts of the different proportions of debt forgiveness were estimated using logistic regression models that also controlled for the amount of student debt held by participants. N=1,009. The brackets on each bar represent the 95 percent confidence interval of each estimate.

Interestingly, Figure 2 shows some interesting differences in response patterns when we shift from considering the amount forgiven to the proportion forgiven.

• There is now a clear relationship between the proportion of student debt forgiven and working less—roughly 10 percent of respondents who had 50 percent or more of their student debt forgiven would work less, compared to almost no one having 25 percent or less of their debt forgiven.
• Respondents having less than half of their student debt forgiven were much more likely to report paying down other debts than those with higher proportions of debt forgiven.
• The bulk of respondents saying they would be more likely to have a child if their student debt were forgiven were those who would have all their debt forgiven.
• Respondents became much more likely to report that they would save for emergencies once the proportion of their student debt forgiven exceeds 25 percent, and were more likely to return to school when the proportion exceeds 50 percent.
• Respondents who had all of their debt forgiven were also much more likely to report starting a business as well.

Student debt forgiveness would benefit both high- and low-income households

As a supplemental analysis, we investigated whether or not student debt holders’ incomes influenced the relationship between student debt forgiveness amounts and hypothetical changes in their behaviors. Interestingly, for the vast majority of possible behaviors, both high- and low-income households reported that different amounts of student debt forgiveness would affect them in similar ways. The one primary exception to this was in terms of savings for emergencies—low-income households were much more likely than high-income households to say that they would increase the amount they saved for emergencies as the amount of student debt forgiveness increased.

Implications

These results show two things. First, they show how extensively student debt affects debt holders. The responses to this experiment indicate that student debt is strongly influencing decisions that can have large implications for household economic stability (e.g., emergency savings) and mobility (e.g., saving for a down payment on a home, starting a business). In addition, student debt may be altering the structure of families themselves. Roughly 7 percent of respondents reported that they would be more likely to get married (results not shown) or have children if their student debt were forgiven, indicating that this debt burden is affecting even fundamental decisions about debt holders’ life trajectories.

Second, these results show that the level of student debt forgiveness matters. In particular, setting a student debt forgiveness target too low may not lead to broad-based changes in households’ economic behaviors. However, setting a student debt forgiveness amount at a point where the average debt holder would have more than a quarter of their debt forgiven may yield large changes in savings behaviors, human capital investments (e.g., returning to school), and business starts, without leading to large changes in labor supply.

As policymakers grapple with whether or not to forgive student debt, how much to forgive, and who gets their debt forgiven, it is important to consider the impact of debt forgiveness on household behaviors and how this might differ by the amount of debt held. Our results suggest that larger amounts of debt forgiveness can improve both family stability and upward mobility—especially when these amounts make up a greater proportion of their overall student debt amounts.

A proportional approach to student loan forgiveness

Among those who are considering student debt forgiveness policies, the debate is often framed as a choice between a universal or a targeted policy approach. In this debate, proponents of targeted approaches suggest that universal approaches tend to be inequitable, as they offer benefits to individuals who don’t necessarily need them, and that these approaches tend to be unfair, as these breaks do not apply to previous debt holders who paid off their student loans. As universal approaches tend to be more expensive, proponents of targeted approaches also note fiscal trade-offs, as the money used to pay off the “luxuries” of higher earners could instead be used to help lower earners meet basic needs, such as food and housing.

While the universal approach often focuses on the dollar amount of debt forgiven and the targeted approach often focuses on the income threshold for who would qualify for debt forgiveness, our results suggest that an approach forgiving a proportion of loans should be considered as an option as well. Here, policies could take into account the actual amount of individuals’ debt and forgive a certain proportion of it. This strategy could be applied to either universal or targeted debt forgiveness, or a combination of both approaches. For example, all individuals could have a proportion of their student debt forgiven, and this proportion could increase for lower-income individuals. This approach would have the benefit of addressing the equity concerns of those advocating for a more targeted approach, while still providing real and substantial benefits to student debt holders across the income spectrum.

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Supreme Court considers fate of Biden's student loan relief plan

By Elise Hammond , Tierney Sneed , Katie Lobosco and Adrienne Vogt , CNN

A timeline of how student loans became a trillion-dollar problem for Americans

From CNN's Elise Hammond

Millions of Americans have student loan debt,  amassing to more than $1.6 trillion  by the end of last year, according to the Federal Reserve Bank of New York.

The Federal Reserve data shows people under the age of 30 are more likely to have student loan debt compared with older adults — underscoring the crippling burden on another generation of Americans.

But the impact is multigenerational. Nearly a quarter of the outstanding student loan debt is owed by Americans who are 50 and older.

Student debt has not always been a crisis. The modern federal education borrowing system came from a series of legislative moves aimed at helping more people have access to college — but it came with some unintended consequences.

Here are some of the key moments:

1958: The first federal initiative 

The National Student Loan program, aimed at expanding access to higher education, was launched in 1958. Created from the National Defense Education Act, it was the first federal student loan initiative for those studying certain subjects to improve science, mathematics and engineering skills during the Cold War.

1965: The Higher Education Act

The Higher Education Act of 1965 opened the possibility of college to even more people, regardless of area of study — but it also created a new type of relationship between the federal government, banks and college campuses through the Guaranteed Student Loan program.

It solved for the government the challenge of how to get lenders involved with such a risky financial investment: The loan did not come from the federal government, but instead, the government assured repayment to bankers willing to give loans, Shermer said.

1970: Sallie Mae and a boom in borrowing and private loans

The Student Loan Marketing Association, known as Sallie Mae, was created through the reauthorization of the Higher Education Act in 1972. Sallie Mae offered private student loans along with other financial products.

The availability of financial aid products to both for-profit and nonprofit companies allowed for the rise of private student loans, she said.

That coupled with the  rising cost of tuition  in the 1970s meant that students needed more money to continue their education. Since there was a limit to how much students could borrow in federal loans, private loans were needed as a supplement.

Another reason why private loans became more critical was pressure in Washington for Congress to cut taxes and cut spending, she said.

Keep reading here.

Challenge to student loan forgiveness plan could have legal implications beyond debt relief

From CNN's Ariane de Vogue

The Supreme Court is set to hear a headline-grabbing case concerning President Joe Biden’s student loan forgiveness program that will affect the finances of millions of Americans.

Critics, including the Republican-led states that have sued, say the initiative amounts to an unlawful attempt to erase an estimated  $430 billion  of federal student-loan debt under the guise of the pandemic.

But the legal impact could go well beyond the fate of the program .

The US Supreme Court will hear oral arguments in the state-led case plus another brought by individual borrowers backed by a conservative group on Tuesday.

While most of the attention so far is focused on whether the Department of Education exceeded its authority in implementing the program, some court watchers are focused on an equally important procedural issue that is a major part of the case: whether the red states behind the challenge have the legal right, or “standing” to bring the dispute in the first place.

The concept of standing is one that requires a party to establish an actual or imminent injury to get into court. Simply disagreeing with a policy is not enough. In recent years, states from one party have felt increasingly emboldened to come to court to sue an administration from a different party over a controversial policy. For the Biden administration, the issue is of critical importance now, especially as Republican-led states feel they have an advantage with the court’s 6-3 conservative majority.

Professor Samuel Bray of Notre Dame Law School said it’s a problem for both Democratic and Republican administrations and he worries about states using the judicial branch to bring federal policymaking to a standstill.

Judges are meant to decide concrete disputes between parties, the thinking goes, and they should not engage in political or policy debates better left to the other branches of government.

Keep reading here .

Education secretary expresses confidence in student loan debt relief plan ahead of key oral arguments

Ahead of today's pivotal Supreme Court oral arguments , Education Secretary Miguel Cardona told CNN that the administration is assured in its authority to forgive $430 billion of federal student loan debt.

What is the HEROES Act?: In court papers, US Solicitor General Elizabeth Prelogar stressed that the Higher Education Relief Opportunities for Students Act of 2003 – known as the HEROES Act – provides the government with the authority to offer the relief. Under the law, passed to help active-duty military in the wake of the September 11, 2001 terrorist attacks, the government says the secretary of education has the authority to act in a national emergency to make sure borrowers are not left worse off with respect to their loans than they were before the emergency.

"We're working on fixing broken systems, but we feel confident that this plan is legal, based on the fact that it's off of the pandemic and the economic impact that the pandemic caused," Cardona said.

The secretary added that the Covid-19 pandemic is a current ongoing crisis, despite Biden saying the pandemic is "over" in an interview on "60 Minutes" in September 2022. The administration plans to end the Covid-19 national and public health emergencies in May.

But Cardona said the "economic impact of the pandemic is still real," adding that the majority of the student loan relief is targeted to those making under $75,000.

Analysis: The 9 justices are far from being representative of the borrowers that could benefit from the relief

From CNN's Devan Cole

The fate of President Joe Biden's  student loan forgiveness  program that would impact scores of borrowers from a wide array of colleges and socioeconomic backgrounds lies in the hands of nine relatively wealthy people who graduated from a short list of elite private schools.

When the Biden administration goes before the  Supreme Court  Tuesday to  defend the program,  which would offer up to $20,000 of federal student debt forgiveness to millions of qualified borrowers, it will be making its arguments to a small group of jurists who are far from being representative of the borrowers that could benefit from the relief.

The justices' salaries alone set them apart from most of the country: Chief Justice John Roberts will make $298,500 in 2023, while each of the associate justices will bring in $274,200 this year for their service. That doesn't include any revenue from outside sources, like book deals.

The court is also comprised of some of the nation's brightest legal minds from a small number of prestigious schools, yet another factor that underscores their distance from the borrowers who could benefit from the debt relief assistance. Most of its  current members  attended one of two Ivy League law schools: Harvard and Yale.

Roberts, along with Justices Ketanji Brown Jackson, Neil Gorsuch and Elena Kagan all attended Harvard Law School. Justices Sonia Sotomayor, Clarence Thomas, Samuel Alito and Brett Kavanaugh went to Yale Law School. The only current justice who is not part of the Ivy club is Amy Coney Barrett, who received her law degree from Notre Dame.

Some of the justices had financial assistance to help them attend school: Thomas  received a scholarship  from Holy Cross College to pay for his undergraduate degree there, while  Sotomayor  attended Princeton University and Yale Law School on scholarships. And they have come from different backgrounds with different politics. Thomas, for instance, grew up in poverty in Pin Point, Georgia, and is the court's leading conservative justice.

Borrowers face uncertainty around their student loan payments. These are some of the looming questions

From CNN's Katie Lobosco

The fate of President Joe Biden’s major  student loan forgiveness program  lies with the Supreme Court. It could be as late as summer before the justices rule on whether the policy can take effect, leaving borrowers uncertain about the future of their loan payments.

The mired rollout of Biden’s forgiveness program has  created confusion  for borrowers. Here are some of the big questions still surrounding student loans:

Will Biden's student loan forgiveness plan take effect? The  Supreme Court will hear arguments  in two cases concerning Biden’s student loan forgiveness program on Tuesday, which could deliver up to $20,000 of debt relief for millions of low- and middle-income borrowers.

A decision on whether the program is legal and can move forward is expected by June. Until then, it is on hold and no debt will be discharged under the program. Litigants argue the Biden administration has overstepped its authority, and other recent Supreme Court decisions have  ruled against aggressive executive agency actions .

However, lawyers for the Biden administration say that Congress gave the secretary of education “expansive authority to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies,” like the Covid-19 pandemic, according to a  memo  from the Department of Justice.

When will the pandemic pause on payments end? For the third consecutive year, federal student loan borrowers started 2023 without having to make payments on their loans thanks to a pandemic-related pause.

Payments were set to resume in January, but the  Biden administration extended the pause  after its student loan forgiveness program was halted by federal courts. Officials had told borrowers debt relief would be granted before payments restarted.

The payment pause will now last until 60 days after litigation over Biden’s student loan forgiveness program is resolved. If the program has not been implemented and the litigation has not been resolved by June 30, payments will resume 60 days after that.

What about the new student loan repayment plan? The Biden administration has proposed  big changes to existing income-driven repayment plans , aimed at making payments more manageable for borrowers. It’s unclear when the reforms may take effect.

The changes, which could impact roughly 8 million people currently enrolled in income-driven repayment plans and open up the plans for more borrowers, would reduce monthly debt burdens, as well as the total amount borrowers, pay over the lifetime of their loans.

The Department of Education expects to start implementing some parts of the new income-driven repayment plan later this year but needs to go through a rulemaking process first.

Dive deeper into looming questions here.

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Home > JSFA > Vol. 45 > Iss. 3 (2015)

Journal of Student Financial Aid

Nicholas W. Hillman , University of Wisconsin - Madison Follow

Borrowing and Repaying Student Loans

Short Title

This essay synthesizes the most recent and rigorous research on student loan debt. It focuses on basic questions about who borrows, how much, and whether debt affects behaviors. Answers to these questions are necessary for informing federal student loan policymaking, yet the research findings are surprisingly mixed because of poor data quality, research design challenges, and the growing heterogeneity of borrowers. This ambiguity makes federal policymaking difficult when questions about the benefits and burdens of student loan debt are left unanswered. By synthesizing the current research, this essay helps answer some of these questions while calling attention to others.

Recommended Citation

Hillman, Nicholas W. (2015) "Borrowing and Repaying Student Loans," Journal of Student Financial Aid : Vol. 45 : Iss. 3 , Article 5. DOI: https://doi.org/10.55504/0884-9153.1588 Available at: https://ir.library.louisville.edu/jsfa/vol45/iss3/5

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• Paying Off Loans vs. Investing:

Factors to Considers

Paying off student loans early.

• Pros and Cons of Paying Off Loans
• How to Pay Down Student Debt Faster

Investing Toward Other Goals

Pros and cons of investing, the bottom line.

• Student Loans

Paying Off Student Loans vs. Investing: Which Should You Prioritize?

Weigh the benefits of paying off your student loans versus investing

You probably know that investing is an important part of building wealth for the future, but if you have student loans, you may feel like you need to get them paid off before you begin investing. Neither option is inherently better than the other, as the "right" one to prioritize will depend on your goals and how comfortable you are having debt. Before you decide between using extra cash to either pay down student loans or invest, you'll want to ensure you fully understand your financial situation.

Key Takeaways

• Evaluate the benefits and drawbacks of paying down federal student loans versus private student loans before you make a decision.
• Consider the impact of interest rates on student loans compared to potential investment returns.
• If you can afford to do so, you may want to put portions of your discretionary income toward both investing and paying down your student debt.

Paying Off Student Loans vs. Investing: An Overview

Paying off student loans early can bring peace of mind, in addition to reducing the amount of interest you pay over time. On the other hand, investing works best when you start early and be consistent. The potential returns might outweigh what you're paying in interest.

Personal Financial Goals

First, think about your financial goals and priorities. Prioritize whether you want to be debt-free faster or build wealth for the future. Carefully think about which goal makes the most sense for your situation. Perhaps you need to get out of debt to qualify for a mortgage before you save for retirement. Or maybe you're comfortable carrying some debt and want to build an emergency fund to prepare for unexpected expenses first.

In some cases, student loan debt can keep you from reaching other goals. By paying it off, you might feel more freedom to make progress in other areas of your life. On the other hand, you might want to build wealth earlier by putting your extra money to work through investing.

You may be able to invest and work toward paying off student loans by budgeting portions of your discretionary income for both.

Interest Rates

Interest is the money you pay to borrow money. Student loan interest rates vary, so some of your loans might have higher rates than others. Even if you consolidate your loans to one interest rate, you're still paying interest.

Plus, if you had interest accrue during your time in school, or during a deferment or forbearance period, it's likely been added to the balance of your loan and you're now paying interest on that interest. The faster you pay off your loans, the more money you save in the long run.

Let's say you consolidate your federal loans. The formula for determining your interest rate for a loan consolidation takes your balances and statutory interest rates into account. To determine your new consolidation loan balance and interest rate, total the balances and average the interest rates of the loans you're consolidating, rounded up to the nearest one-eighth of 1%. Say you have the following undergraduate unsubsidized loans:

• $5,500 at 5.05%
• $6,500 at 4.53%
• $7,500 at 2.75%
• $7,500 at 3.73%

In this case, a consolidation loan would be for $27,000 and have an interest rate of 4%.

If you're concerned about compounding interest and you have an interest rate that's high relative to potential returns, focusing on repaying student loans might make sense.

By inputting your loan term, principal amount, and interest rate into a loan calculator , you can calculate the total interest expense on different loan types.

Potential Returns on Investments

Paying off debt is often considered a "guaranteed return" based on your interest rate. But what if your potential returns on your investments are higher than the interest rate you pay on your student loans?

In the example above, you're paying 4% on your student loans. However, the long-term average annual return of the S&P 500 is about 10%, more than twice the rate of some student loans. In that case, you might be better off putting more of your discretionary income toward investing, since your returns could be much higher than what you'd paying in interest.

Keep in mind that the stock market can be risky and isn't guaranteed to provide returns each year.

Type of Student Loan

Compared to federal loans, private student loans typically have different terms and access to fewer benefits and programs. In that case, you might decide to tackle your private loans first. Then, you may want to address your federal student loans or choose to invest first.

If you're not eligible for federal student loan repayment programs, you may also be able to refinance all of your private and federal loans together into one private loan with the same term but at a lower rate. Then you can reduce your debt faster without paying as much.

Carefully consider your financial situation and your future earning potential as you evaluate the types of student loans you have. In many cases, it might be better to not refinance federal and private loans together and pay them down separately.

Tax Deductions

You can potentially deduct up to $2,500 of your student loan interest when you prepare your taxes. This can lower your taxable income and reduce how much you owe. In some cases, depending on your rate, the tax deduction might offset a portion of the interest you pay.

A quick way to estimate your tax deduction is to multiply the dollar amount of your total interest payments by your tax bracket. For example, if you pay $1,500 in student loan interest during the year and you're in the 22% tax bracket, your deduction is worth $330. That's not enough to fully negate your interest, but you might decide it's enough to adjust how you allocate money for paying off student loans versus investing.

Forgiveness Programs

Finally, consider whether you're eligible for federal forgiveness programs. Private student loans aren't eligible for forgiveness, but federal loans might be.

• If you're on an income-driven repayment (IDR) plan for 20 or 25 years, your balance might be forgiven.
• The Saving on a Valuable Education (SAVE) Plan doesn't accrue interest if you make your full payment each month and it isn't enough to cover the interest that would've accrued.
• If you’re employed by a government or not-for-profit organization, you might be eligible for Public Service Loan Forgiveness after making 120 qualifying payments.
• Other loan programs, like the Teacher Loan Forgiveness Program and state programs aimed at healthcare providers, are also possible options.

If you can get a lower monthly payment that frees up more money to invest, and you know you'll get some level of student loan forgiveness, it'll be easier to make building wealth a priority.

You should prioritize paying off student loans early if...

• You have high-interest student loans, especially private loans
• Having debt causes emotional stress and being debt-free would offer peace of mind
• You don't qualify for any IDR plans or student loan forgiveness programs
• A high student loan balance is keeping you from reaching other goals
• Your employer offers student loan repayment assistance

Pros and Cons of Paying Off Your Student Loans First

Pay less in total interest

Peace of mind from paying off debt

Better ability to reach other financial goals

Opportunity cost with money that's not invested

Missing out on potential debt cancelation benefits

How to Pay Down Student Loan Debt Faster

You can take several steps to pay down your student loan debt more quickly. These include:

• Making bi-weekly payments instead of monthly payments to get an "extra" monthly payment each year
• Designating extra payments to go toward the principal, instead of pre-paying fees and interest
• Cutting back on unnecessary costs and putting the savings toward paying down student debt
• Looking for ways to earn extra money to put toward your student loan payment
• Putting windfalls, such as tax refunds, bonuses, or gifts, toward your loan repayments

You can prioritize investing if...

• Your employer offers to match the amount you invest (such as with a company 401(k) plan)
• Your student loan interest rate is low and you expect long-term returns in invested assets to be higher
• You can maximize tax deductions from both retirement contributions and student loan interest
• You expect to be eligible for student loan forgiveness and qualify for an IDR plan
• Potential for higher returns over time
• Start building wealth immediately, with the potential to retire earlier
• Might be able to take advantage of an employer match
• Returns might not always be sufficient
• There's a risk of loss of principal when you invest

Should I Use All My Savings to Pay Off My Student Loans?

Before deciding to use all your savings to pay off student loans, consider what you might need that money for. For example, you may want to build an emergency fund to protect yourself from large medical bills or other unexpected expenses.

What Are Some Strategies to Pay Off Student Loans Faster?

Some strategies to pay off student loans faster include putting extra toward the principal by making bi-weekly payments, cutting back on costs, and finding ways to supplement your income.

What Are the Advantages of Federal Student Loans Compared to Private Student Loans?

Federal student loans offer benefits that private loans don't provide, such as IDR plans, deferment in some cases, and loan forgiveness when certain conditions are met. Additionally, there are no credit requirements for undergraduate student loans, and interest rates are the same for each loan in a given year.

How Long Does it Take to Pay Off Student Loans?

It depends on your plan. The Standard Repayment Plan is 10 years, while some consolidation loans can have a repayment period of up to 30 years. IDR plans offer payoffs of 20 or 25 years, and some forgiveness programs provide earlier cancelation. You can also pay off your loan early using extra payments.

Whether you're better off paying down student debt or investing will depend on your situation, financial goals, and how you feel about debt. Additionally, it's important to realize that it's not an either/or situation. You can always invest a portion of your discretionary income while still tackling your student loan debt.

Federal Student Aid. " What’s the Interest Rate on a Direct Consolidation Loan? "

Federal Student Aid. " Interest Rates and Fees for Federal Student Loans ."

YCharts. " S&P 500 Annual Total Return (I:SP500ATR) ."

Internal Revenue Service. " Topic no. 456, Student Loan Interest Deduction ."

Internal Revenue Service. " Tax Tutorial Module 9: Tax Credit for Child and Dependent Care Expenses ."

Federal Student Aid. " Income-Driven Repayment Plans ."

Federal Student Aid. " The Saving on a Valuable Education (SAVE) Plan Offers Lower Monthly Loan Payments ."

Federal Student Aid. " Public Service Loan Forgiveness (PSLF) ."

Federal Student Aid. " Standard Repayment Plan ."

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Most student loan borrowers have delayed major life events due to debt, recent poll says

Student loan debt has caused most borrowers to put off major life events such as buying a home or getting married, a recent study found.

According to the Lumina Foundation-Gallup 2024 State of Higher Education study, which was released Wednesday, 71% of all currently enrolled college students or previously enrolled students who stopped out of their program before completing it say they have delayed at least one major life event because of their student loans.

The study found that among previously enrolled students, 35% say their loans have kept them from re-enrolling in a postsecondary program and finishing their degree.

Graphic explainer: How are college costs adding up these days and how much has tuition risen?

Purchasing a home tops list of delayed events

Purchasing a home is the most commonly delayed event, named by 29% of borrowers, while buying a car, moving out of their parents' home and starting their own business followed closely behind. Fifteen percent of those borrowers also report they have delayed having children because of student loans and another 13% have delayed getting married, the study found.

Learn more: Best personal loans

Demographics of those delaying life events

According to the study, male borrowers are slightly more likely than female borrowers (76% vs. 64%, respectively) to report they have delayed a major life event due to loans.

Delay rates are also slightly higher for 26- to 35-year-old borrowers (77%), "likely because they have entered a life stage in which these events are more relevant than for younger borrowers and because they generally have higher amounts of student loans than their older peers," the study found.

The amount of student loan debt is also a factor in the delaying of major life events. The study found that "borrowers with higher amounts of student loan debt are far more likely than those borrowing lesser amounts to say they have delayed purchasing a home, buying a car, moving out of their parents' home or another major life event."

More than nine in 10 of those who have borrowed at least $60,000 in student loans say they have delayed one or more major life event, according to the study.

However, even relatively modest student loan amounts were found to have an impact, as 63% of those who have borrowed less than $10,000 say they have delayed major live events.

How the study was conducted

The study was conducted from Oct. 9 to Nov. 16, 2023, via a web survey with over 14,000 current and prospective college students. Included among those were over 6,000 students enrolled in a post-high school education program, over 5,000 adults not currently enrolled with some college but no degree, and over 3,000 adults who had never been enrolled in a postsecondary school or program.

Student loan relief: Biden announced $7.4 billion in student loan relief. Here's how that looks in your state

President Biden announced $7.4 billion in student loan relief last week

President Joe Biden announced another batch of student loan forgiveness last Friday for 277,000 borrowers. The canceled debt adds up to $7.4 billion. 

Most of those borrowers signed up for the president’s  signature income-driven repayment plan  – Saving on a Valuable Education, or SAVE. Through SAVE, people who originally borrowed a small amount ($12,000 or less) and have been paying it off for at least a decade are eligible for relief. 

Others affected are 65,700 borrowers participating through other income-driven plans who  should have qualified for relief but did not  because their loan servicers wrongfully put them into forbearance. Fixes to those plans account for nearly half of the loans forgiven in the announcement Friday.

The final bucket includes a few thousand borrowers  participating in Public Service Loan Forgiveness , which relieves the loans for people working in government jobs or positions that give back to the community. Biden has been working to fix various administrative problems that have long plagued the program, and the discharges announced Friday are the result of one such adjustment.  

The latest batch of student loan debt relief brings the total amount forgiven under Biden to $153 billion. In all, the administration says nearly 4.3 million Americans have had their student loans relieved thanks to its actions. That works out to about 1 in 10 federal borrowers who’ve been approved for relief.  

Contributing: Alia Wong & Zachary Schermele, USA TODAY

Gabe Hauari is a national trending news reporter at USA TODAY. You can follow him on X  @GabeHauari  or email him at [email protected].

Politics | Biden’s revived student debt plan hits Federal…

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Politics | boston police arrest 108 at emerson college palestinian tent encampment, politics | biden’s revived student debt plan hits federal register for 30 days of comment, plan would forgive some debts for 25 million borrowers.

If you think the president’s newest plan to forgive student debts is a bad idea, now’s your chance to say something.

The details of President Joe Biden’s plan to forgive some debts for millions of student loan borrowers will open for public comment on Wednesday and, according to the Department of Education, the new forgiveness proposal only adds to the $153 billion in student loan debt already forgiven by the Biden Administration.

Announced last week in Madison, Wisconsin — and hatched not long after his last attempt at the maneuver was blocked by the nation’s highest court — Biden’s new plan would see debts eliminated or reduced for about 25 million Americans, many of them from communities disproportionately at risk of going into debt in pursuit of higher education.

“Today’s announcement shows that the Biden-Harris Administration is continuing to fulfill our promises to fix a broken higher education system,” U.S. Secretary of Education Miguel Cardona said in a statement . “Student loan forgiveness isn’t only about relief for today’s borrowers. It’s about social mobility, economic prosperity, and creating America that lives up to its highest ideals.”

If implemented as currently written, the rules, which will be published the Federal Register for the start of a 30-day comment period, would cancel up to $20,000 in interest accrued by borrowers who owe more than they were originally lent and potentially eliminate the debts of borrowers who entered repayment two decades or more ago.

“Under our new proposal, if you owe more now than when you first started paying your student loans, we would cancel up to $20,000 in runaway interest. And for low- and middle-class families enrolled in my SAVE plan, we would cancel all of your interest,” Biden said in social media postings.

Under our new proposal, if you owe more now than when you first started paying your student loans, we would cancel up to $20,000 in runaway interest. And for low- and middle-class families enrolled in my SAVE plan, we would cancel all of your interest. — President Biden (@POTUS) April 16, 2024

Under the president’s revived plan the Department of Education would automatically discharge the debt of borrowers who qualify but have not applied for debt forgiveness under other available federal programs, and provide assistance to borrowers who took out loans for degrees that didn’t lead to jobs or in order to attend poorly regarded institutions.

A further, as yet unpublished, rule will provide relief to borrows at risk of defaulting on their loan payments due to other unforeseen circumstances.

“These distinct forms of debt relief are designed for borrowers struggling with their loans – and that’s a lot of people,” Under Secretary of Education James Kvaal said in a statement . “There are 25 million borrowers whose interest is growing faster than they can pay it down. That fact alone shows how badly President Biden’s student loan relief is needed.”

Biden’s move to forgive some student debt is inline with his campaign promises on the matter but out of step with a June determination by the U.S. Supreme Court that his earlier plan to forgive up to $10,000 in debt for all borrowers damaged the state of Missouri, due their hosting a private company that collects on defaulted student debt. The court also found the plan was outside the scope of the Secretary of Education’s authority under the HEROES Act of 2003 .

“As we have already shown, the HEROES Act provides no authorization for the Secretary’s plan even when examined using the ordinary tools of statutory interpretation—let alone “clear congressional authorization” for such a program,” the court wrote last year.

According to the Education Data Initiative, student borrowers owed a combined $1.7 trillion as of March. Almost 93% of it, or $1.6 trillion, is debt owned by the federal government.

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U.S. Students With High Loan Debt Get Poorer Grades

U.S. college students with a high amount of student loan debt are getting poorer grades, a new study has found.

Student loans allowed millions of U.S. citizens to access higher education when under normal circumstances, they would not be able to afford it. However, the new study published in the Journal of Social Sciences has found a "negative correlation between academic achievement and having a student loan." This is according to Professor Snorre Lindset at the Norwegian University of Science and Technology (NTNU) Department of Economics, who lead the study.

"We hope our work will shed light on the correlation between academic performance and student debt," Lindset continued in a statement.

During the study, just under 900 undergraduate economics students in the U.S. were analyzed. Around 40 percent of participants had taken out a student loan, the study found. And over half of those that had, were already over $10,000 in debt.

The scientists used grade point averages (GPA) to asses how students in debt were doing in their studies, compared to those who did not have a loan. Overall, the students in debt had lower GPAs, that were unlikely to reach above 3.0. Debt-free students had a much higher chance of reaching a good GPA.

The researchers calculated that a loan-free student had a 26 percent greater chance of achieving good grades than their peers who were in debt.

Around 86 percent of participants in total were under 25 years old. Other notable findings were that older students tended to have a worse GPA than those that were younger.

But the main finding remains: the higher the loan, the worse the GPA.

"This happens regardless of gender, age and other factors we have taken into account," the researchers said in a statement.

The study also provides valuable insights into the student's economic background and their self-awareness.

The students were also asked a range of questions on how interest, money and finances worked, however only 20 percent got the answers right. This is despite the fact that seven out of 10 students reported that they were better than others at money management.

Until now, there had hardly been any research conducted into student loans and how they play into grade averages.

There are a number of possible reasons for the lower grades, for example, stress. A higher level of stress and anxiety caused by debt could link to students being less able to focus on their studies. However, this needs more research.

In 2023, the amount of student loan debt across the U.S. reached a total of $1.73 trillion. This is a record amount.

"We hope our work can contribute to prompting further thorough studies of the negative correlation we have found," Lindset concluded in a statement.

This study was conducted alongside Professor Emeritus Gunnar Bårdsen and Peter Resch from the Department of Finance at the University of Central Florida in the United States.

Do you have a tip on a science story that Newsweek should be covering? Do you have a question about student loans? Let us know via [email protected].

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Guest Essay

What Pain Will a New Wave of Student Loan Payments Bring?

By Yarimar Bonilla

Dr. Bonilla is a contributing Opinion writer who covers race, history, pop culture and the American empire.

This summer, the Supreme Court struck down President Biden’s debt relief plan. The resumption of payments this month after a three-year hiatus, which briefly illuminated the possibility of debt forgiveness for millions of Americans, arrives at a time when the cost of living has risen sharply, interest rates are higher than they’ve been in years and the average American household is carrying an estimated $10,000 in credit card debt.

Mr. Biden’s original loan forgiveness plan leaned on the Higher Education Relief Opportunities for Students Act of 2003 . That law allows the education secretary to waive or modify loan provisions in order to shield citizens from unfairly shouldering the economic fallout during a national emergency, like the Covid pandemic. The president’s second attempt at student loan cancellation began moving forward last week , with a hearing to negotiate the details of a new plan.

His administration can craft more robust changes that could affect student loan borrowers now and into the future, even if those changes could take months, if not years, to hammer out. But the new effort no longer addresses the unfair burdens of the pandemic.

For workers who lost wages, the pandemic has introduced the economic equivalent of long Covid: They haven’t recovered from the financially devastating blows of this virus. For people like me, whose wages remained steady, reduced monthly expenses from commuting, dining and travel, along with the pause on federal loan payments, boosted our savings .

But while we were saving, people who relied on tips and commissions, particularly in affluent areas, saw steep drops in pay. Many were sent home with inadequate assistance, while those of us working from home tried our hand at homemade bread and D.I.Y. haircuts. Three and a half years later, many of those workers have yet to bounce back from the compounded mix of lost income and escalating debts.

Consider my friend, whose name I am not disclosing because he wishes to keep his financial struggles private. Before the pandemic, he earned nearly six figures a year working for a luxury car company. While he still had student loan debt, he had paid off his credit cards, improved his credit score and was beginning to build up some savings — an impressive feat for someone raised on public assistance in the West Bronx.

My friend embodied the promise of publicly funded higher education. Despite dropping out of an underfunded public high school, he eventually obtained his G.E.D., enrolled in community college and later transferred to a four-year state university. But he could afford to graduate only if he took out student loans, and even then, he still had to work to make ends meet. He was hesitant to take on debt, but he trusted the college loan officer’s assurances that they would eventually pay for themselves.

The reality has fallen short of that promise. He’s been on an income-based payment plan for over a decade, but his balance has barely budged. That’s because student loan balances can increase over time, particularly if people are on an income-adjusted plan or need to go into forbearance, in which interest continues to accrue.

He slowly came to suspect what research now confirms: that he might never pay off his debt. And he is not alone. In 2020 over 60 percent of outstanding student loans had higher balances than when they were issued.

Then the pandemic hit. People didn’t think of my friend when they applauded essential workers every night. Yet the sale and repair of luxury vehicles was deemed essential work, forcing him back to the office before vaccines were developed, while the sounds of sirens filled the otherwise empty streets.

His employer received payroll assistance through the Paycheck Protection Program. But since his salary was commission based, his earnings plummeted. The meager savings he had worked so hard to accumulate evaporated, and suddenly he found himself buying groceries on credit. Meanwhile, car dealerships saw their profits surge , especially in the luxury car market, in which buyers experienced windfalls from reduced spending and stock market gains.

A 2020 study by the Pew Research Center found that 42 percent of Americans reported that they or someone in their household faced layoffs or pay cuts because of the coronavirus outbreak. Even many of those who continued working face a mix of lost income and mounting debts.

And it’s about to get worse. My friend told me that he cannot even begin to fathom what he’s going to do now that the moratorium on student loan payments is over and he has to pay them — with interest — again. He resents that corporate giants benefited from pandemic relief while enjoying huge profits. If their financial burdens could be eased, why not his?

In a cruel twist, his student loan payments are due again just as his daughter entertains her own college dreams. As he scrambles to help her pay her application fees, he wonders if he is only perpetuating the cycle of debt. His story haunted me as I opened an email from my student loan provider. After 15 years of teaching at public universities and two years of navigating federal bureaucracy, I learned that my loans were forgiven, thanks to a recent expansion of the Public Service Loan Forgiveness program.

While the letter portrayed this as a generous recognition of my service, I realized that over 15 years, I had paid the full borrowed sum and more. I had done everything “right”: borrowed responsibly, paid diligently and consolidated during historically low interest rates. But my balance had barely budged.

While I’m grateful for the program that canceled my debt, I’m troubled that it is so selective. Why should low-income students, reliant on financial aid for college, be burdened with a lifetime of debt? And what about those who sacrificed during the pandemic, seeing their paychecks evaporate and their debt balloon?

A targeted relief program focused on those who lost their savings in the pandemic could help people like my friend get back on track. More effectively regulating interest rates, offering relief to those who have overpaid because of compounded interest and developing a program similar to Public Service Loan Forgiveness to address pandemic debt would be crucial steps forward.

The Biden administration has already started to quietly reform the student loan system by creating an income-driven repayment plan , canceling the debt of people who went to predatory colleges and expanding the Public Service Loan Forgiveness program. But we need more than reform; we need a true transformation. My friend, his daughter and countless others deserve the chance to pursue their dreams without being saddled with a lifetime of debt.

Yarimar Bonilla , a contributing Opinion writer, is the author and editor of several books, including “ Non-Sovereign Futures: French Caribbean Politics in the Wake of Disenchantment ” and “Aftershocks of Disaster: Puerto Rico Before and After the Storm.”

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips . And here’s our email: [email protected] .

Follow The New York Times Opinion section on Facebook , Twitter (@NYTopinion) and Instagram .

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WSJ Editorial Board: States Push Back on Biden’s Student Loan ‘Forgiveness’ Schemes

Since taking office, President Biden has attempted to “ cancel ” more than  $1 trillion  worth of student loan debt – all without approval from Congress.

One of these cancellation schemes, the so-called “ SAVE Plan ,” was unveiled  after  the U.S. Supreme Court ruled the Biden Administration’s  $330 billion  student loan bailout as unconstitutional last summer. 

Implementation of the “SAVE Plan”  is now being legally challenged by 18 states . 

The  Wall Street Journal’s  Editorial Board  breaks down this latest legal challenge to Biden’s unilateral student loan actions.

Background: 

President Biden’s “SAVE Plan” will result in a staggering   91 percent of new student debt  becoming eligible for reduced payments and eventual transfer to taxpayers. 

The Congressional Budget Office ( CBO ) estimates the “SAVE Plan” will cost taxpayers  $260.7 billion ; outside analysis by the Penn Wharton Budget Model ( PWBM ) projects the plan could cost up to  $558 billion .

The so-called “ SAVE Plan ” turns the originally targeted income-driven repayment (IDR) program into a backdoor student loan cancellation scheme by :

• Reducing  monthly payments from 10 percent of borrowers’ discretionary income to 5 percent of borrowers’ discretionary income.
• Reforming  the “assumed amount of expenses” from 150 percent of the Federal Poverty Line to 225 percent, resulting in:
• An individual needing an income of above  $32,805  before being expected to pay anything.
• A family of four needs a total income of over $67,500  in 2023 (roughly equal to the median income of all households in the U.S.) before being expected to pay anything.
• Covering  the cost of unpaid monthly interest for loan payments less than the full amount, including zero payments, which prevents the loan balance from growing.
• Forgiving  loan balances after 10 years of payments,  instead of 20 years , for borrowers with loan balances of  $12,000  or less. 

Word on the Street:

Via  The Wall Street Journal :

• “Education Secretary Miguel Cardona recently declared that if the Administration’s new SAVE loan repayment plans weren’t challenged in court, “I’m not pushing hard enough.” Congratulations, sir.  Eighteen states have now challenged this back-door loan forgiveness .”
• “The Administration rolled out the SAVE plans a mere 10 days after the Supreme Court last summer struck down Mr. Biden’s $430 billion loan forgiveness. As states argue in their lawsuits, the Education Department  rushed out the plans with sloppy regulatory analysis and illegally converted loans into de facto grants .”
• “As for legal authority, the department refers to a section of the Higher Education Act that supposedly lets Mr. Cardona “craft ‘an alternate repayment plan,’ under certain circumstances.” But  it  omits that the law specifies that this authority is to be exercised “on a case by case basis” to “accommodate the borrower’s exceptional circumstances .”
• “The Administration is making millions of borrowers eligible for forgiveness and zero payments  no matter the circumstances . Even the Obama Administration in a 2015 rule-making disclaimed the authority to relax repayment terms as Mr. Biden has done because “such a change would require congressional action.’”
• “The Education Department now says there’s  no limit to how much debt it can forgive  since the secretary has “discretion as to how much a borrower must pay.” Under this view, as states argue, there is nothing to prevent the secretary from limiting debt repayment to “0.01% of income over $1,000,000 for 1 year only” with the rest forgiven.”
• “ Mr. Biden is playing young people for chumps by promising lower loan payments and forgiveness that may not survive in court .”

Timeline of Biden's Student Loan Scheme: 

The Bottom Line: 

President Biden responded to the U.S. Supreme Court by doubling down on his costly and legally questionable student loan ‘cancellation’ plans. 

Just last week, the Biden Administration  unveiled  a brand new tranche of rules aimed at canceling student debt, which the Committee for a Responsible Federal Budget  estimates  could cost taxpayers up to  $750 billion .

In stark contrast, the  House Budget Committee’s FY 2025 “Reverse the Curse” Budget Resolution  protects taxpayer dollars by ending current and future student loan bailouts.

• Click   HERE  to see an overview of Biden’s student loan scheme.
• Click   HERE  to see Chairman Arrington’s reaction to Biden’s latest student loan “Forgiveness” scheme. 
• Click   HERE  for Chairman Arrington’s statement when President Biden announced this student loan scheme.
• Click   HERE  to read about Penn Wharton Budget Model’s (PWBM) analysis of President Biden’s student loan bailouts.
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HECS indexation is expected to be 4.7 per cent. Check how much extra you could be paying with our calculator

The financial year doesn't end for another two months, but there's a closer deadline many people with university debts are dreading: June 1. 

On June 1, all unpaid HECS/HELP debts will automatically increase when indexation is applied. 

If you've got a higher education debt, here's what you need to know.

But if you're not familiar with HECS, tap the links below for a quick explanation:

What is a HECS debt?

What is indexation, what is the hecs indexation rate for 2024.

The Australian Taxation Office (ATO) hasn't formally confirmed the indexation figures yet.

But, now we have the latest Consumer Price Index (CPI) numbers , we can work it out ourselves. 

This year, HECS-HELP debt is expected to  increase by 4.7 per cent after indexation.

But that's provided the same formula from last year applies (more on that later). 

It's less than last year's 7.1 per cent increase, but significantly higher than 2021 — when indexation was just 0.6 per cent. 

How much is my HECS debt going to go up by?

Below is a calculator that will tell you how much your HECS-HELP debt will increase by if indexation is applied in the same way it did last year.

It's automatically set to $25,000 to represent a typical HECS-HELP debt.

Plug in your debt balance to see what it might look like post-indexation.

But, remember, this is an estimate based on last year's indexation formula. 

When is HECS/HELP indexed?

But with the federal budget coming up on May 14, federal Education Minister Jason Clare has indicated he's open to changing the way HECS repayments are calculated.

It's unclear what that could mean — or whether any changes would come into effect before this year's indexation deadline — so we'll be combing through the budget papers in a few weeks time for more details. 

Where can I find my HECS debt?

You can check it online at the ATO website or through the myGov app .

But you'll need to create a myGov account and link it to the ATO.

If you're looking for your total in the myGov app, tap the Services icon and tap on the Australian Taxation Office link in the menu.

Once you're in the ATO menu, scroll down to the Loan accounts section and tap the view button.

The balance is what you still owe.

Which education loans are indexed to inflation?

Any higher-education loan scheme is indexed, including:

• Higher Education Loan Program (HELP)
• VET Student Loan (VSL)
• Student Financial Supplement Scheme (SFSS)
• Student Start-up Loan (SSL)
• ABSTUDY Student Start-up Loan (ABSTUDY SSL)
• Trade Support Loan (TSL)

What were the previous HECS/HELP indexation rates?

The lowest indexation rate we've seen in the past 14 years was in 2021, when it was just 0.6 per cent.

The highest was last year's, at 7.1 per cent.

Here's a look back:

Who has the highest HECS debt in Australia?

Last year, the Australian Tax Office (ATO) released the country's 100 largest HELP/HECS debts through a Freedom of Information request.

The highest debt was $737,000 .

The second highest was $495,990, with the top 10 all holding balances of more than $300,000.

By the end of the 2023 financial year, more than 86,000 people owed a debt between $60,000 and $70,000.

All up, nearly three million Australians with a student debt owe the government a total of $78 billion.

What is the average HECS debt in Australia?

The average student HECS debt in Australia is $26,494 .

The table below shows how much the average HECS debt has gone up since the 2009-2010 financial year.

Once the 4.7 per cent indexation is applied, the average student debt of $26,494 will increase by $1,245.

What is the maximum HECS/HELP debt limit?

According to the Australian Government Study Assist website, the HECS/HELP loan limit is $121,844 for most students .

The limit for students studying medicine, dentistry, and veterinary science courses leading to initial registration is $174,998.

But you'll notice how the highest debt we talked about earlier was $737,000 — which is much more than the limit. 

That's because, if they've gone unpaid, HECS debts can increase with time.

And that's how people can end up paying more for their loan than they initially borrowed. 

How much do you have to earn to pay back HECS debt?

Here's what the 2023-24 financial year's repayment rates are, according to income.

But keep in mind, these repayment rates may change come July.

• Below $51,550: Nil
• $51,550 — $59,518: 1.0%
• $59,519 — $63,089: 2.0%
• $63,090 — $66,875: 2.5%
• $66,876 — $70,888: 3.0%
• $70,889 — $75,140: 3.5%
• $75,141 — $79,649: 4.0%
• $79,650 — $84,429: 4.5%
• $84,430 — $89,494: 5.0%
• $89,495 — $94,865: 5.5%
• $94,866 — $100,557: 6.0%
• $100,558 — $106,590: 6.5%
• $106,591 — $112,985: 7.0%
• $112,986 — $119,764: 7.5%
• $119,765 — $126,950: 8.0%
• $126,951 — $134,568: 8.5%
• $134,569 — $142,642: 9.0%
• $142,643 — $151,200: 9.5%
• $151,201 and above: 10%

It's a debt people accumulate if, instead of paying their university fees up front, they opt for a federal government loan to pay it off later. 

These debts are interest-free.

But that doesn't mean they won't increase because, each year, indexation is applied. 

And indexation doesn't just apply to the original figure students borrowed — it applies to whatever the debt is at the time. 

So, say a degree cost $20,000. 

And, after a year, an indexation fee of 4 per cent is applied — the student now owes $20,800.

Then, the next year, indexation is 7 per cent — that's applied to the $20,800, not the original loan amount. 

So then that debt increases by $1,456.

Assuming the student hasn't made any payments in those two years, their debt has gone up to $22,256.

A key feature of the loan scheme is that students don't have to start paying off their debts until they earn more than a certain amount. 

And this money should be deducted from each pay cheque by their employers. 

However, their debts still increase with indexation each year even when they earn less than this threshold.

So if a graduate takes 10 years to work up to a point where they're being paid above the threshold, they don't start making an involuntary payment for a decade. 

But their HECS debt has had a decade of indexation fees applied — meaning their debt will be higher than the original loan. 

Got it, take me back to the top!

Indexation is a fee that is applied once a year — always on June 1 — and affects the overall amount of a person's HECS/HELP debt .

Indexation means that the price of something is changed in correspondence with an external factor.

In this case, the price of something is the student debt and the external factor is the CPI.

Each year, student loans increase based off the CPI percentage — which is a set of figures released by the Australian Bureau of Statistics (ABS) every three months to track the cost of living.

Why is HECS indexed?

We went to ABC business editor Michael Janda to get his explanation on the purpose of indexation:

"Due to inflation, which is the tendency for the purchasing power of money to diminish over time, the 'real' value of HECS debts would shrink if they were not indexed. "By indexing them by CPI, the government links the value of the debt to the most widely accepted measure of inflation and keeps their 'real' value constant."

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