At what point is student loan debt too much?
44.7 million Americans currently have student loan debt which totals out to around 1.71 trillion dollars. Many consider student loan debt a “good debt” because it is money borrowed for something that will appreciate or grow in value so the investment is worth it. Yet, it’s come into question how much student debt is too much debt?
Around half of those who possess student loan debt are younger than 34 and have or will finish school with an average of $37,584 in loans. That’s an increase of over 300% from 1970 when adjusting for inflation, and the cost of college is only going up – it’s one of the fastest inflating costs next to healthcare.
One survey says that around 41% of borrowers are in a financial position where if they have an emergency like a car repair or medical emergency, they wouldn’t be able to repay it. Also, the rate of delinquency on student loans is high. Currently, 6.5% of all student loan debt is 90 days late or in default.
Research has been done that shows the burden of student loan debt is massive. It can cause poor mental and physical health, delaying marriage, delaying renting or buying a home, and can cause less satisfaction with life.
Too much student loan debt can prevent access to the one thing Americas were taught to strive for in life – the American Dream, or the idea that success is possible in the United States no matter someone’s background. First-generation and low-income students have a more difficult time paying off their loans and end up defaulting more often than other students. Black students on average owe 60% more than white students and struggle even more due to racial wealth and income gaps.
It may have been the government’s purpose to assist people in getting a college education by the way of lending, but today the lenders are causing harm to those they were supposed to help.
Why is Debt Relief so Important?
When the COVID-19 pandemic began, the government temporarily paused interest charges and payments for the majority of federal student loans. This relief is slated to expire at the end of September of this year. Once this relief expires, loan defaults are predicted to return to their pre-pandemic levels.
The Department of Education has the ability to provide relief which experts say would boost the economy. One study done states that a one-time cancellation of student loan debt could translate to a GDP increase of $86 billion to $108 billion on average a year. It would also help those who have been putting off milestones to their debt.
It would especially benefit minorities and those who are low-income who struggle the most with student loan debt. The debt cancelation would assist in mitigating the racial wealth inequality in America.
As of right now, the Biden administration has discussed providing student loan relief to Americans, but the plan has experienced a myriad of setbacks. President Biden rejected the democrat’s plan to provide $50,000 in relief but has said to be supportive of providing $10,000. There have also been discussions of reforming the debt relief program for those who go into public service.
In the meantime, individuals interested in pursuing a college education can educate themselves on the opportunity cost associated with student loans by comparing the cost of student loan debt against the median salary earned by professionals with their projected major. Beyond student loans, aspiring college students can also find many financial resources to fund their education through scholarship and grant opportunities offered outside of their academic institution.
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