In student loan forgiveness news, President Joe Biden has recently announced a plan to forgive up to $20,000 in student debt. If an individual makes less than $125,000 annually, or a household makes less than $250,000 annually, then they can request $10,000 in loan forgiveness. If an individual received a Pell Grant, then that amount doubles. This is meant to help those in lower income households.
Since its announcement, this plan has caused controversy throughout the country. The divisiveness of student debt has been around for a long time. There have been calls for student loan forgiveness, but at the same time, there has been the question, is student loan forgiveness real?
Pros of Student Loan Forgiveness
On the side for student loan forgiveness, there are a lot of benefits that come with less debt. It helps borrowers that have been paying for 20 plus years to eliminate the rest of their loans, as well as decrease the amount of years spent paying back student loans for everyone. According to CBS News, this will allow college grads to make bigger financial decisions.
In addition to helping financially, student debt forgiveness can also help equity. This plan is specifically designed to help lower income families and graduates more significantly than those in higher income brackets. The White House points out that targeting lower income families and graduates will help decrease the wealth gap.
There are also student loan forgiveness public service benefits. Those working in public service, such as the military, government, or non-profits, can earn more credit towards student debt. This plan allows for those that have been serving for at least 10 years to gain more credits towards debt than before.
Cons of Student Loan Forgiveness
The biggest argument against this student debt forgiveness plan is that it will cause more harm through inflation than good. This is unlikely though, as debt forgiveness is not a check in the mail. Graduates are not gaining any money by accepting student loan forgiveness, rather they are only decreasing the years in which they have to pay off. If graduates still have student debt, even after the $10,000-$20,000 forgiveness, then they will still have to be making payments each month.
How Big is the Impact Really?
Are student loans forgiven? Not entirely. For many borrowers, only $10,000 of their student loans will be forgiven. With college pricing continuously rising, $10,000 will not cover all of recent graduates' debt. This brings us back to is student loan forgiveness real? The answer is yes. While student loans in their entirety are not forgiven, a good portion is. This relieves some financial pressure from lower income graduates as they will no longer be expected to be paying off loans for the rest of their life.
Due to this amount of loans being forgiven, graduates are given the opportunity to make bigger financial decisions sooner rather than later. This includes purchases like vehicles or homes. Life can go on and move forward for borrowers previously weighed down by student debt.
Does Loan Forgiveness Affect the Age of Homeowners?
Up until now, student loan debt has been a major barrier to homeownership. This is especially true for millennials, who are shouldering the majority of the nation's student loan debt. Those with student debt worry they will not be able to afford homeownership, which prevents millennials from purchasing a home. Rocket Mortgage states that with this new plan in place, we can expect to see a surge in millennial homeownership. While before student loan forgiveness millennials planned to buy a house within 4-9 years, they are now projecting to buy a house within 1-3 years. This is good news for the housing market as a whole.
The recently proposed student debt forgiveness plan will have a significant impact on the housing market. According to the plan, any student loan debt that is forgiven will not be considered taxable income. This means that any forgiven debt will not count towards a person's income when determining whether or not they can afford a mortgage. For many people, this will be a game changer. More homeowners means more stability and more demand for housing. This, in turn, will lead to more construction and more jobs in the housing industry. It is a win-win for everyone involved.
So, if you are planning on buying a house in the near future, keep an eye on the student debt forgiveness plan. It just might be the boost you need to finally make your homeownership dreams a reality.
Interview With a Recent Graduate
It is easy to get caught up in the numbers, though. In order to better understand how this student loan forgiveness program directly affects new homeownership, Lifetime Quality sat down with a recent college graduate from Columbus, OH.
Why did you personally decide to pursue higher education?
My family had a big role in my pursuit of higher education. Neither of my parents had a college degree, and I grew up with the expectation that I would have the opportunity to go to college if I wanted to. I also just love to learn, so it was a no brainer for me to continue on to college.
How did you finance your college education?
I’m from a single income family home, so it was clear from the beginning that if I wanted to go to college, it would have to be through loans and scholarships.
Have you thought about entering homeownership?
I have thought about it in the sense that I know I won’t achieve it for a while. I just wouldn’t be financially able to afford big purchases, like a home. If I had to guess, I’d say I’ll probably look into homeownership in 6 or 7 years. As a recent graduate, I also probably don’t have enough credit built up to be approved for a house. Student loans help with my credit, but I can only afford to pay them off a little at a time.
What are your thoughts on President Biden’s recent plan for student loan forgiveness?
I’m incredibly grateful for the opportunity to have even a portion of my loans forgiven. I remember in high school when one of my teachers celebrated finally paying off the rest of his student loans, and he had been out of college for quite some time. I just automatically figured in today’s economy that I would be paying off my student loans for years and years after I graduated. It’s horrible that some families don’t even get the opportunity to enter higher education because of the weight of financial instability.
Now that you’ll be receiving debt forgiveness, are you more likely to buy a home sooner?
I’d say yes. With less debt, I’ll be able to pay off my loans faster. Once my student loans are all paid off, I’ll be more open about looking into bigger financial responsibilities. I think something a lot of people miss when thinking about debt forgiveness is that it’s not like I'm getting money handed to me. I’ll still have a good chunk of student debt to pay off, so I’m not going to go on some big shopping spree or anything. My money will still go towards my loans.
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From Student Loan Forgiveness to Homeownership
The new student loan forgiveness program will help save students from the financial pressure of higher education. It will allow lower income students to afford going to college, and we will see an increase in many aspects, but inflation is not one of them. With less debt, graduates will be more likely to afford housing and take on bigger financial responsibilities.
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