U.S. Student Loan Repayment Resumes: Challenges and Relief Measures
The resumption of the student loan repayment period in the U.S., after a three-year hiatus, has left many borrowers grappling with financial strain. According to data from the U.S. Department of Education, by mid-November, only 60% of federal education loan holders had resumed payments. The root of this struggle can be traced back to pre-pandemic times, with the total education debt in the U.S. crossing the $1.7 trillion mark.
Surge in Student Loan Balances
The average student loan balance at graduation has seen a three-fold increase since the 1990s, moving from $10,000 to $30,000. Moreover, about 7% of borrowers owe more than a staggering $100,000. This surge in balances is one of the main contributors to the repayment difficulties many are currently encountering.
Biden Administration’s Measures to Assist Borrowers
To ease the transition into the repayment period, the Biden administration is rolling out a 12-month ‘on-ramp’ to repayment. This initiative aims to shield borrowers from the harsh repercussions of falling behind on payments. Additionally, the administration is considering options for student debt cancellation, following the Supreme Court’s rejection of its initial plan.
Advice for Struggling Borrowers
Financial experts suggest deferment as a viable option for those finding it difficult to resume repayments. Unlike forbearance, deferment may not accrue interest, particularly for subsidized undergraduate loans. There are a variety of deferment options available, including unemployment, economic hardship, graduate fellowship, military service, post-active duty, and cancer treatment deferments. However, forbearance, which could lead to increased debt due to interest accumulation, should be the last resort.
Income-driven repayment plans are highly recommended as they cap monthly payments based on discretionary income and promise potential debt forgiveness after 20 years. Personal finance experts also caution that deferment or forbearance should only be considered for short-term hardships, emphasizing the importance of finding a sustainable payment plan.
State-Level Efforts to Provide Student-Debt Relief
In an effort to offer student-debt relief to borrowers, Hawaii’s Healthcare Education Loan Repayment Program has pledged to repay up to $100,000 of healthcare workers’ student loans if they commit to working full-time for two years in the state. This program, funded with $30 million from the Hawaii state legislature and an additional $5 million from Salesforce CEO Mark Benioff and his wife Lynne Benioff, serves as an example of state-level efforts to alleviate student debt, even as broader federal student-loan forgiveness remains uncertain.
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