While graduating from medical school is a significant accomplishment, you may feel as if you’re carrying a heavy burden in the shape of student loan debt. With the forbearance coming to an end, it’s important to know what the future holds for borrowers.
The topic of student loan forgiveness has been long on the table. And it’s about time to know more about this pressing issue.
Based on the research by the Association of American Medical Colleges (AAMC), the median medical school debt for 2019 graduates who took out loans was $200,000. Many students owe even more money as a result of their undergraduate courses.
Student loan debt has long been a concern since it disproportionately affects young people today more than prior generations.
Due to decades of education funding deficits, students today pay substantially higher college prices than prior generations. College costs have climbed by more than 16% in the last ten years.
The Impact of Student Loans
Millennials have the unpleasant distinction of being among the most disadvantaged.
Most college students lack financial knowledge, and many borrow far more money than they require. It is critical to match your loan to your costs and to borrow as little money as you can to afford the payments.
Millennials are also having a hard time gaining a better quality of life. Many find that they are unable to save up for a house or take out car loans due to their student debt. Meanwhile, some are being disqualified for jobs due to low credit.
The bottom line is due to interest and other expenses; it’s becoming increasingly difficult for millennials to gain financial freedom.
1. Student loan payments are on-hold: Should I pay anyway?
For over two years, payments on federal student loans have been suspended to offer borrowers a financial break during the pandemic.
As of April 2021, the Biden administration has extended the forbearance until August 2022. But make no mistake, this pause on payments does not equate to ‘forgiveness.’
When payments resume, most federal student loan borrowers will make monthly payments on the same outstanding balance as before the interruption.
And… while there is no hard news, yet, as to student debt cancellation, it’s only practical for borrowers to be prepared once forbearance ends.
If you opt to pause payments
The government does not require you to do anything to get a forbearance to cease making payments on your student loans. Interest will not continue to accrue as it ordinarily would.
A forbearance could provide you with some breathing room while you deal with other financial issues. If you’re unemployed or working part-time, a forbearance could help you pay your rent, electricity, and other consumer debt.
If you still want to continue paying
If borrowers want to pay down their debt faster, they should keep making payments on federal loans.
If you keep paying your balance, you won’t have to pay any new interest on your loans throughout the forbearance period. This 0% interest rate will help pay down the principal balance much faster and save you money in the long run.
Deciding on whether or not you should continue to make payments during this period will rely on your payment strategy. If you’re subscribed to the standard timeline (10 years), then you might consider continuing paying.
If you’re behind on your student loan payments
All debtors, including those who were more than 31 days late prior to March 13, 2020, or who became more than 31 days delinquent soon after, had their payments immediately terminated. This indicates that the loans are under forbearance and will not be defaulted on.
When a payment on a federal loan is 270 days late, it is sent to collections, resulting in credit damage, wage garnishment, and the seizure of tax refunds.
The student loan repayment forbearance expires in less than 100 days. Spend some time figuring out your loans, updating your information, and making sure you’re on the correct repayment plan, according to experts.
2. Current Debt Relief Programs
With ever-increasing tuition fees and a culture of promissory notes and delayed gratification, borrowing appears to be a natural part of higher education for students, especially those pursuing a medical degree.
Recently, the Department of Education has launched programs that aim to provide student debt relief.
Total and Permanent Disability Discharges restoration
Because they neglected to complete annual income paperwork during the pandemic, several disabled borrowers who were eligible for a Total and Permanent Disability Discharge had their payback obligation revived.
For 230,000 borrowers with Total and Permanent Disability Discharges, the Department of Education will rescind the reinstatements and provide further student loan debt relief.
Debt Forgiveness For Borrower Defense to Repayment Discharge Claims
The Trump administration enacted a plan in which misled borrowers were only awarded partial loan forgiveness. The mechanism for partial relief was incorrect.
The Department of Education has stated that all borrowers who have had their borrower defense claims recognized will have their loans discharged completely. Seventy-two thousand borrowers who were victims of predatory student lending will be affected.
Forgiveness of Student Loans Without Taxes
Student loan debt forgiveness and its tax treatment have also been addressed by Congress. All student loan forgiveness and debt cancellation will be tax-free until December 31, 2025, thanks to the American Rescue Plan Act of 2021.
Because most other types of student loan cancellation already have tax-free status, this largely affects forgiveness after a 20 or 25-year income-driven repayment plan.
However, whether executed through executive action or new legislation, it sets the stage for future student debt forgiveness.
3. Will student loan forgiveness ever happen?
Student loan forgiveness has long been an issue in the government.
Some Democrats in Congress have campaigned for up to $50,000 in debt forgiveness per borrower, while the majority of Republicans have been staunch opponents.
Since President Joe Biden vowed to forgive $10,000 per borrower on the campaign trail, federal student loan debtors have wondered if their debt will be canceled.
If all federal student loan debtors receive the said amount in debt forgiveness, the country’s outstanding education debt will drop to $1.3 trillion from $1.7 trillion. Additionally, approximately one-third of federal student loan borrowers, or 15 million people, would have their balances reset to zero.
But for some experts, they say it’s nothing more than just a ‘pipe dream .’And borrowers should start preparing for what’s to come.
Other Updates on Student Loan Forgiveness
Currently, the Justice Department, in collaboration with the Department of Education, is conducting a review to establish whether or not the President has the legal right to cancel federal student loan debt up to $50,000 through executive order. Currently, there is no indication of a specific date for the publication of these reports as of now.
Delays are expected to happen as policy advisors in both departments have not yet been confirmed by Congress.
If student loan forgiveness is introduced through executive order or legislation, the White House’s Domestic Policy Council will choose how it should be targeted.
Scams promising debt forgiveness in exchange for a fee should be avoided by borrowers. When it comes to student loan forgiveness, it will most likely be automatic and free.
With student loan forgiveness becoming increasingly improbable, it’s time to take the wheel and start planning for when repayment resumes.
Find the time to rethink your payment strategy, go over your terms and conditions, and update your information. More importantly, use this period to think of possible solutions should the time come that you can no longer afford to make payments.
To hear what Dr. Nii and Dr. Renée have to say about student loan forgiveness, check out 261 Docs Outside the Box podcast.