The Essential Guide to Student Loan Forgiveness

The Essential Guide to Student Loan Forgiveness and the 2020 Election

Student Loan Debt is $1.6 trillion and growing. 

American families saddled with high-interest debt are unable to afford homes, unexpected healthcare costs, or retirement savings. The economy is shrinking, and one thing is clear: Erasing unforgiving student loan debt is one way to invigorate the economy and uplift the millions of citizens who are struggling to make ends meet.

That’s why the 2020 election is full of student loan forgiveness plans. No matter which strategy you are looking at, here are two primary questions to consider:

1. Will student loan forgiveness work?
2. Will student loan repayment benefits still be relevant if the government passes any of these plans?

The answers may surprise you.

A Glimpse At The Current State of Loan Forgiveness

On a good day, one could call the current loan forgiveness schemes ineffective. 

There are several programs already in place with the sole purpose of easing the student loan burden. But they are often inaccessible, and can make the loan worse.

The most popular program is the Public Service Loan Forgiveness program, which requires graduates to volunteer or work in qualified government programs for ten years. However, the skills necessary usually mirror the other programs. In other words, they need teachers, medical professionals, and lawyers. 

And the application process isn’t simple. According to the United States accountability office, in April of 2019, only 55 out of 19,321 applicants were approved for loan forgiveness. That is less than 1%!

Income-based repayment programs can contribute to growing your student loan debt. This is because low payments on high debt can translate into paying off the interest instead of the principal. If your payments aren’t going towards the original loan, you may find your debt increasing instead of decreasing.

In other words, the loan forgiveness programs that exist are limited. 

How Much Debt Can Be Forgiven?

Three significant candidates have listed their student loan debt solutions in detail: Elizabeth Warren, Bernie Sanders, and Julian Castro. 

All three plans hope to reduce federal student loan debt, which makes up 92% of student loans. While Sanders desires to remove all student loan debt, Warren and Castro offer income-based plans, targeting low-income borrowers. But there are more limitations as well:

1. Private debt, which amounts to $119.31 billion, will not be forgiven
2. Depending on the plan, not all federal student loans would be eligible for forgiveness 
3. Graduate school and advanced degrees would likely still require significant investments from students

This is all assuming the democratic candidates can pass their bill without any changes. Even if we see a debt forgiveness bill, it’s uncertain whether it will include all or even most of the student loans.

What Happens If College Becomes “Tuition-Free”

Could universities ever become like their western European counterparts and go tuition-free? Yes and no.

While tuition-free education would likely solve the student loan crisis for most Americans, the proposed plans would only cover four-year public universities, trade schools, and community colleges. In other words, private education would still be able to set their price. Even if private education reduces the bill, it’s likely students will still require loans to stay in school, especially if they don’t qualify for financial aid. 

Furthermore, students seeking to be lawyers, doctors, or nurses will still have to foot a massive bill for post-undergraduate studies. These programs are unlikely to receive government support, and even with loan forgiveness, are likely to rack up an outstanding debt.

The Future of Student Loan Repayment Benefits

Regardless of who wins the 2020 election, one this is certain: Student loan repayment benefits will still be boosting employee retention.

Private loans and universities aren’t going away. And many students will continue their journey in higher ed to achieve MBAs or other higher degrees before returning to the workforce. 

There is only so much the federal branch can do to minimize the impact of student loans in the short term. Loan forgiveness is simply a start, but without systemic change, the student loan system is likely going to stick around.

Until we find long-term solutions towards a more affordable higher education, the rest of us have the opportunity to uplift our employees and help them grow.

Contact us below to learn more how about Vault’s student loan repayment platform can be integrated into your company’s benefits package.

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