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Student Debt Relief: Rhyme and Reason

Shawn Fodge, CFP®


Americans have long been obsessed with getting a college education. Only in recent years has data emerged indicating that for some it might not be the best pathway, at least to higher earnings. In the meantime, our obsession has led to a collective debt of what now exceeds $1.75 trillion, more than home loan and credit card debt combined. Student debt has become so substantial it earned national crisis status and has been addressed by federal legislation—highly controversial legislation—to provide student debt relief: up to $20,000 for Federal Pell Grant recipients and $10,000 for non-Pell Grant recipients.

Getting debt relief
Controversy aside, if you have a student loan, here are some things you need to know about participating in the new student loan forgiveness program:

  • Eligibility is based on your most recent year’s household income: less than $125,000 for an individual income tax filer and $250,000 for joint filers.
  • Applications are available as of early October 2022. To apply, log into your account to ensure all contact information is up to date; if you don’t have an account, create a login. Also, make sure that the bank or other financial institution servicing your loan has all your current contact information.
  • The Federal Pell Grant Program provides need-based grants to undergraduates and some post-graduates. They are typically awarded to students with low or moderate incomes. Your account will reflect your current loan status. If have a Pell Grant, to qualify for forgiveness, submit your application; the U.S. Department of Education will check its records to ensure your status and to process accordingly. If you received a Pell Grant prior to 1994 the information won’t display on that website, but you can still receive the full benefit of the loan forgiveness program, if applicable.

The program extends to multiple types of loans including:

  • Undergraduate/graduate direct loans
  • Parent PLUS and Grad PLUS loans
  • Consolidated loans (disbursed on or before June 30,2022)
  • Federal Family Education Loan
  • Program loans held by the U.S. Department of Education
  • Perkins loans held by the U.S. Department of Education
  • Defaulted loans

Rising debt levels
Debt levels have risen in recent decades for a number reasons, including:

  • Since 1980 the total cost of four-year public or private college has nearly tripled, even after accounting for inflation.
  • Federal support in terms of student aid hasn’t kept pace with rising costs. Pell Grants once covered 80 percent of the cost, but currently cover only about a third.
  • As a result, about 16 percent of borrowers are in default, including one-third of senior citizens with student debt.

According to the U.S. Department of Education:

  • Typical undergraduate debt is about $25,000.
  • Ninety-four percent of Pell Grant recipients come from American families with less that $60,000 in annual income.
  • Nearly 90 percent of debt cancellation benefits will go to borrowers earning less than $75,000.

Student loan interest rates

Interest rates on loan student debt are variable, that is, rise and fall with other federal rates. Those rates currently are skyrocketing making it difficult for individuals to save, buy houses, build wealth, care for children, and pay other expenses as they try to trim their student loan debt.

Consider that:

  • During the week of September 12, 2022, average private student loan rates fell for borrowers with credit scores of 720 or higher who used the Credible marketplace to take out 10-year fixed-rate loans and rose for 5-year variable-rate loans. The 10-year fixed rate fell to 7.18 percent from 7.63 percent, and the 5-year variable rate rose to 7.81 percent from 5.88 percent the previous week.
  • Congress sets federal student loan interest rates each year. These fixed interest rates depend on the type of federal loan you take out, your dependency status, and your year in school. For the 2022-23 academic school year, federal student loan rates will range from 4.99 percent to 7.54 percent.
  • Private lenders such as banks, credit unions and online lenders provide private student loans to pay for education costs and living expenses, which might not be covered by your federal education loans. However, student loan experts advise loan seekers to exhaust federal student loan options before turning to private student loans to cover any funding gaps.

We’re here to help. If you have questions about your student loan debt, consult an HBKS financial advisor for more information.


The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

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HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.

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