Most Federal Student Loan Borrowers Have Small Balances

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 recent Washington Post data, 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 that more than half (53%) of federal borrowers actually have less than $20,000 in debt. With a huge 43.4 million people in the United States have federal student loanshowever, that still means there are 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 a third of federal borrowers to pay off their debts, the impact it would have on the rest of the student debt population varies.

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

The obvious risk here is that there is always a chance that President Biden will fail to forgive $10,000 in 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.

Both Marcus by Goldman Sachs High Yield Online Savings account and the American Express® High Yield Savings Account offer above average interest rates, have no monthly fees and require no minimum balance to open an account.

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.