Sept. 1, 2022

93. Student Loan Debt Relief and the Cost of College

93. Student Loan Debt Relief and the Cost of College

So as I recorded this it was late August, and the Student Loan Debt Relief Plan was announced about a week ago. Since the announcement there’s been all sorts of discussion about whether or not the debt cancellation portion of the plan is fair;...


So as I recorded this it was late August, and the Student Loan Debt Relief Plan was announced about a week ago. Since the announcement there’s been all sorts of discussion about whether or not the debt cancellation portion of the plan is fair; whether or not it goes far enough, if it’s just political pandering, and on, and on, and on. So instead of the typical episode I thought we’d take a quick look at the info currently available about the plan, discuss some of the pros and cons of a college education and college debt, and end with my thoughts on what the takeaways are from all of this for you.

Student Loan Debt Relief Plan

So let’s start with the basics. Perhaps the best place to get info on the Student Loan Debt Relief Plan is studentaid.gov, or specifically studentaid.gov/debt-relief-accouncement. Studentaid.gov is an official website of the U.S. Department of Education. Here you’ll find the basics of the plan. You can also subscribe to get updates at ed.gov/subscriptions

There are 3 main parts to the plan: 

 

  • A final extension through the end of 2022 of the student loan repayment pause that initially was intacted during the early days of the coronavirus pandemic 

 

 

  • A new income-driven repayment plan that will reduce future monthly payments for lower- and middle-income borrowers.

 

 

  • Targeted debt relief to low- and middle-income families

 

    1. Up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education 
    2. Up to $10,000 in debt cancellation to non-Pell Grant recipients. 
    3. Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households.
    4. Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the U.S. Department of Education.
    5. If the U.S. Department of Education doesn't have your income data, the Administration will launch a simple application which will be available by early October. (How do you know if you have to apply?)
    6. If you would like to be notified when the application is open, please sign up at the Department of Education subscription page.
    7. Once a borrower completes the application, they can expect relief within 4-6 weeks.
    8. Borrowers are advised to apply before November 15th in order to receive relief before the payment pause expires on December 31, 2022.
    9. The Department of Education will continue to process applications as they are received, even after the pause expires on December 31, 2022.
  • Borrowers who are employed by non-profits, the military, or federal, state, Tribal, or local government may be eligible to have all of their student loans forgiven through the Public Service Loan Forgiveness (PSLF) program. This is because of time-limited changes that waive certain eligibility criteria in the PSLF program. These temporary changes expire on October 31, 2022. For more information on eligibility and requirements, go to PSLF.gov.

Pros and Cons of College/College Debt (Britannica ProCon.org):

 

  • Pros
  • College graduates make more money

 

  1. The average college graduate makes $570,000 more than the average high school graduate over a lifetime.

 

  • College education has a high return as an investment.

 

  1. Return on investment (ROI) is calculated by dividing  the money earned as a result of a college degree by the money spent on a college degree. A college degree has a return of 15% per year as an investment, larger than the stock market (6.8%) and housing (0.4%).

 

  • Jobs increasingly require college degrees.

 

  1. Only 34% of American jobs require a high school diploma or less in 2017, compared to 72% in the 1970s.

 

  • College graduates have more and better employment opportunities.

 

  1. The unemployment rate for Americans over 25 with a bachelor’s degree was 1.9% in Dec. 2019, compared to 2.7% for those with some college or associate’s degrees, 3.7% for high school graduates, and 5.2% for high school drop-outs

 

  • Cons
  • Student loan debt is crippling for college graduates.

 

  1. Average Student Loan Debt (Forbes.com)
    1. $1.75 trillion in total student loan debt (including federal and private loans)
    2. $28,950 owed per borrower on average
    3. About 92% of all student debt are federal student loans; the remaining amount is private student loans
    1. Borrowers between the ages of 25 and 34 carry about $500 billion in federal student loans
    2. Borrowers ages 35 to 49 owe more than $620 billion in student loans.
    3. 2.4 million borrowers aged 62 or older that owe $98 billion in student loans.
  2. Federal Loans by Age
  • Many students do not graduate 
    1. About 19% of students who enroll in college do not return for the second year. 
    2.  Overall, 41% of students at four-year colleges and universities did not graduate within six years: 41% at public schools, 34% at private non-profits, and 77% at private for-profits. 
    3. According to the Federal Reserve Bank of New York, roughly 34% of college graduates are underemployed,

 

  • College degrees do not guarantee learning or job preparation.

 

  1. In 2013 56% of employers thought half or fewer of college graduates had the skills and knowledge to advance within their companies. 
  2. 30% of college graduates felt college did not prepare them well for employment, specifically in terms of technical and quantitative reasoning skills. 

 

  • Learning a trade profession is a better option than college for many young adults.

 

    1. The high number of young adults choosing college over learning a trade has created a ‘skills gap’ in the US and there is now a shortage of ‘middle-skill” trade workers like machinists, electricians, plumbers, and construction workers. 
    2. Middle-skill” jobs represent half of all jobs in the US that pay middle-class wages. 
  • Certain big tech companies no longer require employees to have a college degree (MastersPortals)
    1. Especially when it comes down to programming, coding, and technology in general, you can find free online courses on mastering Linux, developing a website, administrating WordPress, and so on.
  • In addition to free tutorials and how-to videos on YouTube, there are many other popular online education platforms, which offer free or affordable courses in any area you can think of:
    • Coursera
    • Skillshare
    • Udemy
    • EdX
    • Khan Academy
  • Some of the top tech enterprises that don’t ask job candidates for college degrees:
    1. Google
    2. Apple
    3. IBM
    4. Tesla

Final Thoughts/Takeaways

  • Provisions are subject to change - Subscribe to updates on  the U.S. Department of Education website (link in shownotes) for updates 
    1. The Biden administration relied on the 2003 Heroes Act enacted following the Sept. 11 terror attacks to underpin its plan. It argues that because of the COVID-19 emergency, the law gives the Education Department the authority to both suspend loan repayments through Dec. 31 and cancel loan debt for many borrowers. (The Hill)
  • If you already have student loans debt, assuming the debt forgiveness plan doesn’t get derailed:
    1.  Take advantage!
      1. Eliminate other debt (Debt Snowball, Debt Avalanche)
      2. Build an emergency fund
    2. Have a plan. If loan forgiveness frees up cash for you, make the best of it. Consider using the freed up cash flow to 
  • If you’re considering taking on college debt
    • Don’t assume that future debt forgiveness will be available (extremely political) 
    • Consider Return on Investment (run the numbers for your individual situation) 
      1. While there are no guarantees that going to college will pay off, there are a few degrees that typically provide better chances than others. These include:
      2. STEM. Jobs related to science, technology, engineering and mathematics tend to do well. STEM careers are available in many forms and in all industries. The Bureau of Labor Statistics expects the demand for STEM careers to grow by 8% by 2029, which is more than double the expected growth for other fields.
      3. Medical, nursing and pharmaceuticals. Doctors, nurses, pharmacists and medical support staff are needed all of the time and all over the world. More than 2 million new jobs in the medical field are expected to be available by 2026. (GoBankingRates)
    • Consider cost efficient alternatives (Trade schools, On-line education platforms, etc)

Resources

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