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How life changes as the student debt finish line approaches

While widespread student debt write-offs of up to $20,000 have stalled in the courts, other wheels are turning when it comes to forgiveness. More federal student loan borrowers than ever are paying off their debts. And it changes their lives.

So far, more than 200,000 people have seen their debts paid off through just one federal forgiveness program.

But the situation starts to improve even before their balance reaches $0.

A new study has found that as the count of remaining payments nears the end, borrowers’ mental stress begins to decrease, and they report lower levels of self-destructive behavior such as drug and alcohol abuse or suicidal thoughts. Financial stress decreases and credit scores improve accordingly, as does home ownership.

“I think when you get close to forgiveness, it starts to change people’s mental maps,” says Dan Collier, an assistant professor of leadership at the University of Memphis, who contributed to the report for the Student Borrower Advocacy Center. SBPK.

The results come from a survey of 785 student loan borrowers who are seeking or have already received public service loan forgiveness. Until that point, it was not clear exactly what impact this forgiveness might have on borrowers.

“The only reason this study can exist is because the Biden administration has fixed the PSLF,” says Collier.

What’s the problem with utility loan forgiveness?

Public Service Loan Forgiveness aims to write off debts to borrowers who work full-time for government employers, making payments over a period of approximately 10 years. But due to technical details that disqualify borrowers and 10 years of paperwork complexity, as of October 2021, only 2.4% of PSLF applications have been approved.

Existing federal programs such as government loan forgiveness have long since ceased to function. In the background, the Biden administration has steadily made incremental improvements to make life easier for more borrowers than ever.

According to the U.S. Department of Education, a total of 215,555 of 360,000 eligible federal loan borrowers have already been discharged under the long overdue program using the annual waiver of past payment rules that expired October 31, 2022. As of October 31, only 12,527 borrowers have received forgiveness of their debts under traditional rules.

And the program should receive more fixes from July 1, 2023, including credit for partial payments and months spent in various types of deferments or relief, such as military service, economic hardship or cancer treatment.

Borrowers’ suffering is relieved by forgiveness

Until this year, until forgiveness is achieved, borrowers report constant financial and emotional stress, according to the SBPC survey.

Financial stress is essentially the difficulty in meeting financial obligations. Among those surveyed, financial stress remained the same for borrowers with 61 or more payments, and for those with 13 to 24 payments left.

Emotional losses are greater: Psychological stress was highest among those with 13 or more payments left. And among those who were severely distressed, there was a higher risk of self-destructive behaviors, including suicidal thoughts, over-the-counter drug use, and drinking alone. Suicidal thoughts were highest (18%) among borrowers with outstanding payments between 37 and 48.

Approaching and eventually achieving forgiveness seems to dispel the dark clouds.

On the financial front, borrowers who achieve forgiveness report the least financial stress, have the highest average credit score of 766, and about 80% own their own homes. They also experience the least psychological stress, as well as the lowest rates of over-the-counter drug use, drinking alone, and suicidal thoughts.

What doesn’t change

Surprisingly, writing off student loans did not increase borrowers’ satisfaction with life or their jobs, the study found.

Only 42% said they were considering leaving their job after being forgiven. “I think this debunks any notion that when these programs work properly, people automatically get loan forgiveness and get fired from their jobs,” Collier says, referring to the critique of public service loan forgiveness, which argues that forgiveness causes borrowers to deviate from their often lower levels. paid professions as soon as they receive forgiveness.

There were also slight discrepancies between groups of borrowers in two indicators of financial well-being: personal savings and pension savings.

But that might just be a sign of the times. More consumers than ever have savings, and federal student loan borrowers haven’t paid in years. It’s likely, Collier says, that borrowers are using the money they would have spent on their loans to save money and pay bills.

New PSLF fixes in progress

While the PSLF exemption has expired, the new federal student loan one-time payment review will give borrowers a second chance to count past months in the total amount needed to forgive income-based repayment and PSLF.

The one-time review is the result of the Department of Education findings that millions of borrowers were forced to withhold repayments but were allowed to charge interest when millions of borrowers were enrolled in income-based repayment plans.

Borrowers can expect the one-time review to show up in their student loan accounts by July 2023. You do not need to take any action if you have already applied for the PSLF. If you have not done so, you must submit a Combined Certificate of Employment/PSLF application to see the number of past payments as part of the one-time check.

The Collier study is ongoing and student loan borrowers can take part in the Public Service Loan Forgiveness Survey. The password, of course, is “PSLF”.

Borrowers who have previously been denied by the PSLF can request a review online at studentaid.gov. If you’re not sure if you qualify, use the PSLF Help Tool.

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