Most Federal Student Loan Borrowers Have Small Balances

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With all the talk going on around President Joe Biden forgiving $10,000 in debt to federal student loan borrowers — a move expected to be announced this summer — Americans are wondering how many people that would leave completely debt-free.

According to recent data from the Washington Post, most federal student loan borrowers actually have small balances and would therefore benefit greatly from having wiped out $10,000. About a third (33%) of borrowers owe less than $10,000, while another 20% owe less than $20,000.

Here’s a look at how everyone’s student debt has evolved:

  • 33% of borrowers owe less than $10,000
  • 20% of borrowers owe between $10,000 and $20,000
  • 21% of borrowers owe between $20,000 and $40,000
  • 18% of borrowers owe between $40,000 and $100,000
  • 7% of borrowers owe $100,000 or more

The numbers show how more than half (53%) of federal borrowers actually have less than $20,000 in debt. However, with 43.4 million people in the United States having federal student loans, that still means there are still nearly 20 million adults left with large balances of $20,000 or more – more than three million. adults currently have six-figure federal student loan debt.

Although $10,000 in loan forgiveness would allow about one-third of federal borrowers to pay off their debts, the impact it would have on the rest of the student debt population varies.

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Federal student loan borrowers owing $10,000 or less

If President Biden’s proposal of $10,000 in student loan forgiveness meant your debt would be completely wiped out, it’s easy to want to bank on that. Holding out for a possible forgiveness means you could potentially get off the hook for having to pay off the rest of your student loans – and who doesn’t want that?

The obvious risk here is that there is always a chance that President Biden will fail to forgive $10,000 of student loan debt, or no debt at all. Or maybe there’s a maximum income threshold to qualify for the rebate that you end up exceeding.

As long as the federal student loan payments and interest freeze are in effect — now through August 31, 2022, and maybe even longer — you can get away with not making any student loan payments and racking up debt. ‘interests. There is no charge for you to wait.

During this time, however, you should consider setting aside the monthly payments you would otherwise make so that the money is still there if the discount falls due when the payment and interest freeze ends.

Hiding that money in a high-yield savings account for now helps buy you time while you wait to hear about any loan forgiveness and end of forbearance. Plus, with interest rates rising, you’ll be able to get a better return on your savings today than you could a year or two ago.

The Marcus by Goldman Sachs Online High Yield Savings Account and American Express® High Yield Savings Account offer above average interest rates, no monthly fees and no minimum balance required to opening an account.

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a member of the FDIC.

  • Annual Percentage Yield (APY)

  • The minimum balance

    None to open; $1 to earn interest

  • Monthly fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *Cycle withdrawal limit of 6/instructions is waived during the Coronavirus outbreak under Regulation D

  • Excessive transaction fees

  • Overdraft fees

  • Offer a current account?

  • Offer an ATM card?

American Express® High Yield Savings Account

American Express National Bank is a member of the FDIC.

  • Annual Percentage Yield (APY)

  • The minimum balance

    Minimum balance to open is $0

  • Monthly fee

  • Maximum transactions

    Up to 9 free withdrawals or transfers per statement cycle *Cycle withdrawal limit of 6/instructions is waived during the Coronavirus outbreak under Regulation D

  • Excessive transaction fees

  • Overdraft fees

  • Offer a current account?

  • Offer an ATM card?

American Express National Bank is a member of the FDIC.

Federal student loan borrowers owing more than $10,000

It is very likely that President Biden will not forgive more than $10,000 of debt per federal student borrower, if that is the case.

For those who owe more than $10,000, continuing to pay off your debt until you reach that $10,000 threshold won’t hurt because chances are you will owe it anyway. With the payment and interest freeze in effect at the moment, any amount paid will be used directly to reduce the amount of your principal. You will finally be able to significantly reduce your debt, while reducing your remaining balance to the lowest possible level.

If you have private student loans

SoFi Student Loan Refinance

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans

  • Types of loan

  • Variable rates (APR)

    From 2.24%; from 2.37% for resident doctors/dentists (rates include automatic payment reduction of 0.25%)

  • Fixed rates (APR)

    From 2.99%; from 3.12% for resident doctors/dentists (rates include automatic payment reduction of 0.25%)

  • Loan conditions

  • Loan amounts

    From $5,000; more than $10,000 for residential medical/dental loans

  • Minimum credit score

  • Minimum income

  • Authorize a co-signer

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

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