The Student Debt Finish Line: How it Changes Your Life

Although a broad student debt cancellation of up $20,000 is currently stalled by the courts, there are other options for forgiveness. Federal student loan borrowers are seeing their debt forgiven more than ever. It’s changing people’s lives.

Over 200,000 people have had their debts forgiven under one federal forgiveness program.

However, things begin to look up even before their balances reach $0.

A new study has found that borrowers experience a decrease in their psychological stress as the remaining payments approach the end. They also report lower rates self-destructive behavior like alcohol and drug abuse, or thoughts of suicide. There are improvements in credit scores and homeownership rates as a result of financial stress.

Dan Collier, assistant professor at the University of Memphis’ leadership department, said that forgiveness can change people’s mental maps. He helped to write the report for Student Borrower Protection Center (or SBPC).

These results are the result of a survey of 785 student loan borrowers, who were either aiming for forgiveness or have already received it. It was not clear what impact forgiveness might have on borrowers at this stage.

Collier says that the only reason this research exists is because the Biden administration has fixed PSLF.

Public Service Loan Forgiveness is a program that forgives debt to borrowers who work full-time for public service employers and make payments for approximately 10 years. However, due to technicalities that disqualify borrowers as well as the difficulty in getting through 10 years of paperwork, only 2.4% had been approved for PSLF applications as of October 2021.

Existing federal programs such as Public Service Loan Forgiveness are long in disarray. The background is that the Biden administration has made steady improvements to provide relief to more borrowers than ever before.

According to data from the U.S. Education Department, 215,555 borrowers who were eligible for federal loans have received discharges under the long-fraught program that used a yearlong waiver of past payments rules which expired on October 31, 2022. As of Oct. 31, only 12,527 borrowers had their debt forgiven under traditional rules.

The program will get additional fixes starting July 1, 2023. Credit for partial payments and months spent on different types deferment or forbearance such as military service or economic hardship, or treatment for cancer, are also available.

The SBPC survey revealed that borrowers reported persistent financial and emotional stress up to the one-year mark prior to obtaining forgiveness.

Financial stress refers to difficulty paying financial obligations. According to the survey, financial stress was not as high for borrowers who had 61 or more remaining payments than it was for those with 13-24 payments.

The emotional toll is much greater. Those with 13 or more outstanding payments were most likely to experience psychological distress. Those with severe distress had higher rates of self-destructive behaviors, such as suicidal thoughts and non-prescription drug abuse, as well as drinking alone. With 37 to 48 remaining payments, suicidal thoughts were at their highest (18%)

It seems that forgiveness is possible to be near and finally achieve.

The financial side, those who are forgiven have the lowest levels of financial stress, the highest credit score (766), and around 80% own their homes. They also have the lowest levels of psychological distress and the lowest rates for solo drinking, non-prescription drugs, and suicidal thoughts.

The survey revealed that borrowers were not happier with their lives or their work.

Only 42% of those surveyed said they would consider quitting their job after forgiveness. Collier says that this discredits any notion that borrowers will automatically receive loan forgiveness and be able to leave their jobs if the programs are working correctly. Collier is responding to criticisms of Public Service Loan Forgiveness, which claims forgiveness causes borrowers not to return home to their lower-paying occupations.

There were also few differences between the groups of borrowers when it came to two indicators of financial well-being, personal savings and retirement savings.

This could be a sign that times are changing. Federal student loan borrowers aren’t making their payments for many years, while more consumers have savings than ever before. Collier believes it’s possible that borrowers are saving money and paying bills with the money they borrow.

The PSLF waiver is no longer valid. However, borrowers will be able to count their past months towards the income-driven repayment forgiveness or PSLF.

This one-time review was prompted by Education Department findings that student loan servicers steered millions of borrowers into forbearance, allowing interest to be collected but pausing payments.

Borrowers can expect the one time review to reflect on student loan accounts by July 2023. If you have already submitted a PSLF request, you don’t need to take any action. To see past payments included under the one-time review, you will need to submit a combined employment certificate/PSLF application.