Will the debt go away? Do i have to pay?


For nearly a year, the country’s 45 million borrowers with federal student loan debt found themselves in comfortable limbo.

This relaxed stagnation started last march when then-President Donald Trump ordered the Department of Education to allow borrowers to stop paying their federal student loans while freezing interest as part of the coronavirus relief effort. The Biden administration extended this hiatus until September with one day an executive order.

The move was meant to help borrowers use their money for more urgent costs like groceries or rent. The more ambitious may have started saving, but a break doesn’t stop. As Congress battles President Joe Biden’s $ 1.9 trillion stimulus package or condemns Trump, borrowers still don’t have answers to their piling questions.

Among them, how long will the break last? And does it make sense to pay off debt now when the possibility of a loan forgiveness is on the table?

While the federal government made it easy for borrowers to skip payments, it didn’t make it clear to borrowers what was to come. Forgiveness may seem like the natural next step, but Republicans and Democrats disagree on the fairness of such a plan. This has left borrowers for their own purposes, and most have taken the path of least resistance.

Should you pay off your student loan debts now – or wait?

“In order to make a payment on your loans, you actually had to do something proactively,” said Mark Kantrowitz, author of five books on scholarships and financial aid. “Whereas if you didn’t do anything, you were automatically in the payment break and interest waiver.”

Travis Smith seems to be one of those proactive people. He chose to use the break period to try to aggressively pay off his remaining $ 30,000 debt. This resulted in payments of around $ 2,000 to $ 3,500 per month.

Smith, a doctoral student at Indiana University at Bloomington who also works in the sports department, said he and his wife were paying off all their debts when the hiatus began. So they live off his salary and direct his earnings towards debt.

“I’m just sick of the principal never changing on loans,” he said. “We knew how important it was to be able to overthrow the principal, so hopefully others will recognize that as well.”

The principal is usually the initial amount that a borrower has committed to repay.

Kantrowitz said the zero percent rate means borrowers who make payments can reduce their loans faster. But that doesn’t mean that all borrowers would benefit the most from this route.

In a loan forgiveness program? Rethink your payments.

Specifically, those who are enrolled in loan cancellation programs may want to rethink their payments. These programs require borrowers to make a certain number of payments before their debt is canceled. Under the current moratorium, these borrowers did not have to make these payments, but they still receive credit for them every cycle.

“This gives them a partial loan forgiveness,” Kantrowitz said.

Peter Orlowicz, a federal government lawyer, took this approach. He said he had student debt of around $ 310,000. He is also less than two years away from paying his debt under the government’s civil service loan forgiveness program.

This program that allows people to take eligible jobs for, say, the government or a non-profit organization. After 120 qualifying payments, the federal government is supposed to write off the debt. Other government repayment plans require borrowers to make payments based on their income for 20 to 25 years, after which their debt is supposed to be forgiven.

Orlowicz’s payments were around $ 950 per month, and he said it was easy to decide to reallocate that money to other costs associated with staying home during the pandemic, including delivery. of food.

“My payments basically don’t cover much more than the interest normally,” he said. “And the amount I would pay during the break will not have a significant impact on the total amount outstanding, I saw no benefit in voluntarily making payments.”

To other borrowers, repayment may seem like a moral issue. Nicholas Grayson said the choice was easy. The government was not asking for a refund, so it is not paying.

Grayson, who works at video game and culture website Fanbyte, said he instead used the money he allegedly paid for his loans to improve his life and that of his partner during the pandemic. This included making home improvements.

Nicholas Grayson, 25, said he had not made any repayment on his loans and instead used the money to make his and his partner's life easier during the pandemic.  He said he supported the government to write off student debt for all borrowers.

Grayson, who went to the University of San Francisco, said he owed about $ 175,000 in student debt. About $ 25,000 of that is in his name, and the rest is in the form of federal loans his mother took out for him.

He said he is on an income driven repayment program. But he and other young minority borrowers he knows approach their debt with the following frame of mind: “either we will die before the loans are paid off or they will fall when we are in our forties.”

Previously reported:Biden maintains payment freeze, calls on Congress to write off debt

Is student loan cancellation the next step?

President Biden avoided promising to write off student loan debt through executive action, and instead said he was backing Congress by writing off $ 10,000 in student loan debt.

Student loan advocates pushed Biden to write off the debt through executive action, including new Senate Majority Leader Chuck Schumer, D-New York, and Elizabeth Warren, D-Massachusetts. they have pushed a plan that would write off $ 50,000 in student loan debt.

And one recent Morning Consult survey found that just over half of adults said they would support $ 10,000 or somewhat in loan forgiveness.

That support was more popular among Democrats, nearly 75% of whom strongly or somewhat support the measure, compared to Republicans, 54% of whom oppose the plan.

Betsy DeVos, the former education secretary, also opposed a widespread loan forgiveness. In December 2020, she said it was unfair to ask Americans who didn’t go to college to subsidize the costs of those who did. This echoes the bipartisan criticism of loan forgiveness more broadly, that forgiveness would unfairly benefit those with a college education and generally earning more as a result. And forgiving the debt once wouldn’t prevent it from piling up in the future.

Reports show that the average graduate of a four-year program holds about $ 30,000 in student debt, but the majority of borrowers who default on their loans have less than $ 10,000.

There is approximately $ 1.56 trillion in the country’s federal student debt portfolio.

A $ 10,000 pardon wouldn’t necessarily result in lower monthly payments, Kantrowitz said. (Although borrowers looking for lower monthly payment options have a series of income-based repayment programs they can enroll in.)

For Grayson, $ 10,000 in forgiveness feels like a drop in the bucket. His income-driven plan would make him eligible for a pardon in 20 years, but payments during that time, he said, will affect the quality of his life.

He said the government is likely to reverse the majority of what it owes, so why not forgive him now? And that’s a question more borrowers are likely to ask when and if their payments resume.

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