Californians to benefit big from student loan forgiveness

Sadia Khan, a recent UC Berkeley graduate, was glued to her iPhone Wednesday, updating Twitter and reading articles to gather emerging details of President Biden’s landmark student loan debt relief plan.

When she learned she was eligible for up to $10,000 in loan forgiveness — enough to pay off her entire $6,000 in federal debt — the financially troubled single mom was overcome with relief.

“We saved money on everything,” said Khan, 27, a law student. “As someone who has no one to fall back on, this would be life changing.”

Biden’s plan won’t go nearly as far as helping Maria Williams, a 29-year-old associate principal at the University of Redlands. She is eligible for loan forgiveness of up to $20,000 because she received a federal scholarship from Pell for low-income students while attending Cal State San Bernardino, which graduated in 2015. However, that will cover less than a third of her $73,000 in undergraduate and graduate debt, a burden so onerous it brought tears to her eyes as she spoke about it.

“It’s a bittersweet feeling,” she said. “It gives you some relief, but there’s still a long way to go. I still don’t see the finish line.”

Overall, the plan announced Wednesday would massively benefit California borrowers, who, by sheer numbers, hold the nation’s largest share of the $1.6 trillion in federal loan debt borne by 43 million current and former college and trade school students across the country be owed.

About 4 million Californians have an average student loan debt of $37,783, according to the Federal Reserve Bank of New York.

But thanks to California’s generous financial assistance programs and relatively low tuition rates at public colleges and universities, the average student loan debt is the third lowest in the country after Utah and New Mexico, according to the Institute for College Access & Success.

About 46% of Californians had an average student loan debt of $21,125 in 2019-20. That compares to $30,951 for 54% of New Yorkers with debt and $26,271 for 52% of Texans, the institute estimates.

About 92% of California borrowers are eligible for the new loan forgiveness, according to Charlie Eaton, associate professor of sociology and student loan expert at UC Merced.

Under the plan, the federal government will award up to $10,000 to those earning less than $125,000 a year and up to $20,000 to those who received a Pell Scholarship for Low-Income Students . The Department of Education is proposing a rule to reduce the required minimum student loan payment from 10% of disposable income to 5% for those on a specific earnings-related repayment schedule. Under the proposal, the borrower’s unpaid monthly interest would be covered.

“This is a historic day,” said Eaton. “And it will have a major impact on our economy and a transformative impact on the lives of millions of student loan borrowers.”

Multiple studies showed that even the pause in student loan payments during the pandemic — which Biden extended through Dec. 31 — allowed borrowers to save money, take more time to find better jobs, cars, and even homes to buy and raise families, Eaton said. The loan forgiveness plan could amplify those benefits and boon to younger generations, who have acquired just one-seventh the household wealth that baby boomers had at the same stage in their lives in 1989, he said.

College affordability advocates hailed debt relief as a big step forward, but say much more needs to be done to enable students to graduate without having to borrow money.

“We’ve been working on this issue for years, and to get it to this level… it’s just amazing,” said Samantha Seng, the legislative director and policy adviser for NextGen Policy, a California-based nonprofit that advocates for progressive policies . “More reform needs to happen so we can at least one day get people on the road to a debt-free college and hopefully a free college.”

But Seng said the plans will do very little to eliminate racial wealth disparities for many borrowers and called for further changes to the way students pay for college, including restructuring loan programs and the loan services industry.

In 2015-16, 21% of black bachelor’s degree graduates had more than $50,000 in student loan debt, compared to 10% of whites, 7% of Latinos and 6% of Asians, according to a California Student Aid report Commission. Black borrowers held an average of $52,726 in student loan debt after graduation — nearly 50% more than their white counterparts.

Manny Rodriguez, the California director of policy and advocacy for the Institute for College Access & Success, an organization working to make higher education more affordable, said the state needs to focus on reducing college costs for students reduce. Students at public colleges and universities in California often borrow money to pay for extracurricular expenses such as housing, food, and transportation.

California colleges used to be more affordable, Eaton said. Only 1 in 8 college students had federal loans in the 1970s. But that began to change in the 1990s, when a recession hit, the state cut funding for higher education, tuition rose, and the federal government expanded access to student loans. Another surge in student loan debt followed the 2008 recession, he said.

In recent years, however, California political and educational leaders have increased the state’s financial aid programs — now the most generous in the nation. The Cal Grant program, for example, now fully covers tuition for about 600,000 students and is expected to expand to an additional 150,000 students in 2024 after Gov. Gavin Newsom and the Legislature expand eligibility with age reductions, time off from high school, and other requirements to have .

Unlike student loans, scholarships don’t have to be repaid — a fact not all students understand, said Marlene Garcia, executive director of the California Student Aid Commission.

She said that starting this year, all high school students will be required to fill out the federal form required to access financial aid — known as the Free Student Aid Application. That, she said, will help make scholarships even more accessible and reduce the need for student loans.

In an even more ambitious goal, world leaders are taking steps to make the college completely debt-free. The University of California, for example, is aiming to eliminate the need for credit by 2030 by providing more campus part-time jobs, increasing institutional financial aid deducted from tuition, and benefiting from an expanded state scholarship program called Middle Class Scholarship 2.0 The UC system has also officially supported the national movement to double the maximum Pell grant, now $6,895 for 2022-23.

However, student loan debt continues to haunt California borrowers — and for many, the Biden plan represents a fraction of the money owed.

Alexis Thompson, a counselor at a Los Angeles elementary school, took out more than $100,000 in federal loans for a USC master’s program in school counseling. After earning a bachelor’s degree from a small liberal arts university, Thompson said she chose USC because of its prestige — hoping for a university that would thrive at a time when competition for counseling positions was intense was, “takes off in CVs”.

Thompson, who graduated from USC earlier this year, said she was excited to learn she could cancel $10,000 of her debt. But she has come to terms with a long road to paying off all her debts.

“I know I went to a school that was more expensive than most, and that was probably the price I would pay to go to a university like that,” said Thompson, who also attended private during her undergraduate career took out loans. “I’ve mentally prepared myself for the fact that I’ll probably be paying off my loans for most of my life.”

Naomi Waters, a UC Riverside graduate student in Public Policy and African American Studies, is saddled with $65,000 in federal loans — $7,000 of which is in accrued interest. Her parents, who work in real estate and public works, lost their homes during the financial turmoil of the 2008 recession and did not have a college fund to support Waters and her two siblings, who were in college around the same time. So Waters was dependent on loans—most of them while she was a student at Cal Poly Humboldt.

She left before completing her program, navigating a confusing and circuitous path to her degree through community college and eventually UC Riverside — all while racking up more and more student loan debt.

She expects to qualify for $20,000 in loan forgiveness, but that won’t go far — especially since she wants to go to law school, which she estimates will add more than $150,000 to her student loan debt.

“It’s great,” she said of the loan forgiveness program. “But it’s a drop in the bucket.” Californians to benefit big from student loan forgiveness

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