President Joe Biden announced on Wednesday, August 24, 2022, that a student loan forgiveness plan would go into action this year for federal loan borrowers. This decision comes after much speculation about whether or not the Biden administration would pursue student loan debt cancellation at all – with political figures on both sides of the aisle weighing in with opinions since President Biden initially took office.
Research has shown that this new loan forgiveness program will impact 43 billion borrowers, and nearly 90% of the relief will go to borrowers making less than $75,000 per year. But is student loan cancellation or forgiveness the long-term solution, or a band-aid?
Today, we want to review both the facts of the student loan forgiveness program, and provide you with our unique point of view when it comes to student loan debt as a whole – and the state of education costs in the United States as they stand today.
What Does the Student Loan Forgiveness Plan Cover?
President Biden has announced a plan for student loan relief in 2022. The plan is designed to take a three-pronged approach to student loan relief. The plan will forgive $10,000 in student loans for individuals making less than $125,000 per year or married families/heads of household making less than $250,000 per year. For individuals who received a Pell Grant, the total amount of loans forgiven increases to $20,000.
How Do I Enroll in the Forgiveness Program?
President Biden has announced that many federal student loan providers already have borrowers’ tax information, and loans may be forgiven automatically. However, if this isn’t the case, or you want to ensure your loans are forgiven if you qualify, the Department of Education is planning to roll out a formal application program in the coming weeks.
What Else Does This Initiative Include?
For those who have enrolled in an income-driven repayment plan (IDR), payments are now capped at 5% of your monthly income as opposed to the previous 10%. This is intended to help those on IDR plans currently pay less month to month and make managing monthly payments more feasible.
Will loan payments continue to be paused?
Yes. President Biden has issued a final pause on student loan payments through December 31, 2022. Payments will resume January 2023.
What about private loans?
This loan forgiveness plan only covers federal student loans.
The College Aid Pro™ Team’s Opinion:
At College Aid Pro™, our #1 mission is to help American families conquer the cost of college and reduce the student debt crisis. While student loan forgiveness may, on the surface, appear to positively impact college grads who are drowning in debt, it may exacerbate the long-term problem. If students go into college with the mindset that their debt may be forgiven (outside of existing PSLF programs tied to specific career paths), they may be more comfortable saddling themselves with massive amounts of debt.
Instead of banking on loan forgiveness in the future, college-bound families should look to become informed consumers, and view selecting a college as a “shopping” process. In other words, do your due diligence! Here are several ways families can get a leg up and start shopping smart and reducing their child’s student debt:
Understand the Cost of College
Signing up for a free tool like MyCAP can help you understand the actual cost of college well ahead of applying to the school. MyCAP is tailored to each individual family and is able to assess both the need-based grant and merit scholarship eligibility across all four years of college.
There’s a major difference between the “tuition costs” that colleges market in their brochures and the actual cost of attendance. Fees, room and board, travel expenses, and more dramatically increase costs for students and families. MyCAP allows you to see the “net cost” for schools across the country – meaning the amount left that families will owe after all scholarships and grants have been accounted for. This is the number that families should be focusing on when shopping for college!
Embrace a “Shopping” Mindset
Families don’t realize it, but they’re in the position of power during this process. If they’re educated on their options, and approach the college decision with a finance-savvy mindset, they can be proactive instead of reactive when making these choices. Look at colleges like you would look at shopping for any other major purchase. Explore your options, establish a budget, shop for schools who fit within or come close to that budget. For ideal or great outcomes this means finding a school that student’s loves that leaves them with little to no undergraduate student debt.
When parents and students alike have a clear idea of what colleges cost, and how to make their dollar go further by applying to and negotiating financial aid with the right schools, they lay a foundation for strong financial decision making in the future. And isn’t that what we want for the next generation of college graduates?
Determine Your Budget
Following this “shopping” mindset, students and parents alike benefit from having an honest conversation around what their college budget is. Know in advance what you can afford – what you have saved, what’s available from parents and grandparents to create ongoing cashflow to cover tuition bills, and whether or not the student has the ability to get a job during school to supplement the cost of education. Knowing in advance how much you have available to cover the cost of college, can help determine a strategy while shopping for colleges. Ideally, finding a school that fits within your budget leads to great outcomes for the student and parent alike.
Work With An Expert
The last thing any family wants is to saddle their kids with a mountain of student loan debt. The dream of a college education is that your child will be able to “get ahead” and set themselves up for long-term success in life and their careers with a college degree. Debt weighs that dream down and makes it difficult to accomplish!
Our team at MyCAP offers not only the technology you need to successfully find your most affordable path to college, but also a team of experts. We’re here to back you up, and help to provide you with the education you need to make an empowered college choice. Sign up for MyCAP today to learn more by clicking here!