Money Rehab with Nicole Lapin - 411 on the Student Loan Extension and How it Affects You

Episode Date: August 16, 2021

The student loan moratorium was extended until January 31st. Listen to hear what this means for you, and how to get that debt monkey off your back. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. It's time to talk about the crisis in the United States.

You know which one I'm thinking about? Because there are many. Well, here on Money Rehab, I love to tackle them all. But let's take one thing at a time. Today, we're focusing on the student debt crisis. This episode was inspired by a listener question from money rehabber Brittany. Hey, Nicole, I just graduated and I have over $30,000 in student debt. I haven't had to contribute toward my student loans over the course of the pandemic. I know the deadline

on moratorium just got extended, but I know that deadline is still going to come up quickly. It makes me panic when I think about it. What should I do? So, Brittany, I want to start by saying you are not alone, and I totally hear and can feel your anxiety. I empathize with it. I have been there. The student debt problem in the United States is massive. I mean, I don't think anyone is trying to put a pretty bow on it anymore. Let me give you some of the stark numbers. 39,000. That is the average dollar amount that people in student debt owe after graduation. 43.2 million. That's the number of Americans who are currently in student debt. And a large percentage of students have loans from both undergrad and postgrad degrees.

1.7 trillion. That's the amount of money that's owed by all Americans in student debt. 1.7 trillion with a T dollars. Just to put that into perspective, let me give you some context. Last year, Canada was ranked number nine of the top 10 countries by GDP. And a quick dictionary side note, GDP, or gross domestic product as it stands for, is a really common measure of a country's economic health. It's basically the value of all the goods and services produced in the country. Okay, back to the example. So Canada had a higher GDP than 184 countries, and yet still the U.S. student debt is $100 billion more than Canada's GDP. It's an astronomical number,

and each of those dollars is owed by a student, just someone who was told that education is the key to success and is now feeling extremely stressed, just like you, Brittany. And this stress is made even worse by the problem of compounding interest, which typically grows the amount owed significantly. On average, by the time a borrower has paid off their student loans, they've paid 287% of the initial amount they borrowed. One part of the problem is that college education in the United States has a huge price tag, and it's only getting bigger.

education in the United States has a huge price tag, and it's only getting bigger. According to CNBC, average tuition and fees for the 2020 to 2021 academic year increased by 1.1% to $10,560 for in-state students at four-year public colleges, and fees at four-year private institutions rose by 2.1% to $37,650. It is no wonder with those kind of numbers that millions of students have to take out student loans. And while education is supposedly the great equalizer, student debt is hitting groups that have historically been shut out of educational opportunities. For example, 58% of all student debt belongs to women, and Black college students owe on average $25,000 more in student loans than white students. I still have nightmares about my college days. I actually have a recurring one that I never finished college, and maybe that's because I was always applying for grants and always applying for ways to get through college.

And I think that anxiety has stayed with me long past my college years. Yes, long past my college years. But it is still a nightmare for me, literally. Thankfully, as you mentioned, Brittany, during the pandemic, federal student loan interest rates were set to zero and payment requirements have been paused. The original deadline for payment to resume was October 1st. federal student loan interest rates were set to zero and payment requirements have been paused. The original deadline for payment to resume was October 1st, but the deadline was just bumped back to January 31st, 2022. And that is welcome news to the majority of folks who have outstanding loans. Before the deadline was extended, a Pew survey found that two-thirds of federal student loan borrowers are not ready to restart their payments. So this

extension is a sigh of relief. But just because the deadline was pushed back doesn't change the fact that this is a trillion dollar problem. And when the country has a problem, it's the government's job to intervene to try and fix that problem. And the White House has made it abundantly clear that this is the absolute last time the deadline will be extended. Come February 1st, there will be bills to pay. So has this moratorium just been kicking the can down the road? Or will Washington come together to provide larger scale relief? Let's look at the receipts.

the wannabe President Biden, he proposed a program that would offer $10,000 of student debt relief for every year of national or community service for up to five years. Yes, there's always a catch. However, President Biden now has not made good on that promise. Time points out that during his first address to Congress in April, President Biden discussed a proposal for an additional $1.8 trillion in federal spending, which includes investment in education, but didn't make a single mention of student loan forgiveness. Now, to be fair, Biden has canceled billions of dollars in student loans, but only for very targeted groups. And we need that shit for everyone. Many Democrats are saying that the $10,000 he threw out

on the campaign trail is actually not enough. And the numbers look more like $50,000 of loan forgiveness for all borrowers, which, as I mentioned earlier, is actually more than the average borrower has in student debt. So I do love that idea. Biden has brushed off the $50,000 suggestion, however, saying that number would target people who have received advanced degrees and therefore are likely working in well-paying industries and can afford to pay off their student debt. I call bullshit on that one. It sounds like what's really going on is Biden knows he can't get Congress to agree on a number as big as 50K. Politicians, reporters, and universities alike are wondering how this extension factors into the greater

conversation about student loan forgiveness. And the truth of the matter is, we don't know yet. So, Brittany, there is a chance there will be widespread forgiveness, but there's no guarantee. Plus, even if student loan legislation does pass, it seems likely that there will be a maximum of $10,000 forgiven, which will leave you to tackle your remaining $20,000. So I'd recommend that you navigate your spending plan as if you're not going to get your entire student loan forgiven and you need to plan accordingly. Take advantage of the fact that compound interest isn't working against you and pay off that principal. While you're making your

game plan, know that there are two tracks you can follow. First, you can look into a federal program like income-driven repayment plans or working in public service in exchange for loan forgiveness. Second, you can refinance your student loans at a lower interest rate. But if you do so, you're permanently shut out of the aid programs I just mentioned. Brittany, I know that you're still looking for work out there right now, so I'd recommend checking out non-profit or government gigs that align with your degree. It seems possible that whatever loan forgiveness plan does pass, it will offer more relief for people in public service. So if you find a job you love and a job that gives you an edge in paying off your student debt,

that's a win-win. For today's tip, you can take straight to the bank. Set a Google alert so you get an email every time there's a breaking headline on student loan forgiveness. The more you know about what's happening in Washington, the more detailed you can make your spending plan and get that debt monkey off your back. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and

get it all.