Relief for college financial agony
Whether you are a current college student or dealing with student loans you took out years ago, the coronavirus pandemic has created a special kind of angst. Here's a look at how current students are being affected and some updates on what's being proposed by the incoming Biden administration to help you deal with your existing student loan debt.
New research from AIG Retirement Services and EverFi, a financial literacy technology company, reveals the impact of the pandemic's uncertainty on today's students. Caught between online learning and restricted campuses, students are suffering from a disruption in their education. The survey also found that most students have anxiety about COVID-19, and fewer than half feel prepared to manage their anxiety. So much for the happy, carefree days of college.
Even worse, nearly one-third of students reported that the pandemic has put extra financial stress on their families. And they were looking for more financial aid, scholarships and part-time jobs. More than half (57%) say they will have student loans at graduation, and more than one-third say they have at least two credit cards.
Student loan repayment problems
Student loans are now the second largest category of American debt. The only larger category is mortgage debt. At $1.6 trillion, outstanding student loan debt is even more than credit card debt.
Those with balances have a bit of grace thanks to the CARES Act, the coronavirus relief law enacted last spring, and to an executive order extending the period in which borrowers can skip payments without interest. The amount skipped is being added to the end of the loan. That means many borrowers will be paying on those loans up until the time they should be considering retirement.
Even worse, that executive order ends on Dec. 31, unless the president extends it or Congress includes a similar provision in another stimulus bill. Of course, such relief depends on a lot of political change in the two months until a new administration takes over. And with the Senate control still in question pending the outcome of the Georgia run-off elections, there may not be enough votes to pass new legislation.
But there is hope for student borrowers in the proposals that are currently being made public.
Proposed student loan remedies
President-elect Joe Biden has said publicly that he supports the earlier proposed House stimulus bill, which would extend the suspension of payments until September 2021 and immediately forgive up to $10,000 of student loan debt.
Another alternative comes in the “Securing a Strong Retirement Act” that was introduced in the Democrat-controlled House. It would include a provision that allows student loan debtors to receive matching employer contributions for student loan debt repayments instead of contributing to their retirement accounts.
There is also a discussion about whether the next president could simply cancel or change student loan debt provisions by executive order. According to some observers, that would not require an Act of Congress, though it might face challenges.
Sen. Elizabeth Warren, who is mentioned as a possible Biden Cabinet secretary, long ago proposed waiving the first $50,000 of student loans. But a policy more likely to be put in place is expanded access to the underutilized and overly complex Public Service Loan program. This program might be broadened by executive order for those who are in public service careers, including teaching and medical fields.
While some think it's unfair to suddenly wipe out a large portion of student debt, that argument can be countered by the fact that much of the outstanding debt is accrued interest. And that interest is the fixed rate taken out years ago — sometimes as high as 8%. Meanwhile, our government borrows for 10 years at a rate below 1%.
No matter what approach is taken to relieve student loan debt, the issue is likely to be near the top of the new administration's agenda, following only the immediate need to deal with the distribution of a COVID-19 vaccine.
So if you're one of those students — or a family member — overwhelmed with student loan debt, take a deep breath and wait a few months. After ignoring the burden of this debt for many years, the government will act soon. And that's the Savage Truth.
Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.