The Biden administration announced its student loan forgiveness plan, which will be a big relief for millions of borrowers.
Working- and middle-class Americans are being forgiven up to $10,000 in federal student loans, and Pell Grant recipients within specified income thresholds can have up to $20,000 in student debt forgiven.
As of 2022, the number of student loan debt in the US is close to $1.75 trillion, according to the Board of Governors of the Federal Reserve. Approximately 43 million borrowers have federal student loan debt with an average balance of more than $37,000, the Education Data Initiative reports.
Countless students who took out college loans in hopes of a better future were told the investment would pay off in the long run, says Erika Rasure, financial therapist and founder of Crypto Goddess.
“Many borrowers feel that they’ve essentially been sold a bill of goods under false pretenses,” says Rasure, “Not only do you have the guilt of not being able to repay the loans, you also have the shame.”
On the other hand, canceling student loans is likely to have the opposite effect and allow graduates to pursue dreams and careers that mountains of debt never allowed them to.
“When you have this big harness hanging over your head, it really clouds the things you thought you could do with your degree,” Rasure says. “I think student loans have been soul-crushing to be honest with you.”
Here are three ways student loan forgiveness can improve borrowers’ mental health.
How student loan forgiveness can improve mental health
- It can give you a sense of freedom. With less debt hanging over your head, you’d be much more likely to pursue opportunities that didn’t seem possible before, says Rasure. She believes that loan forgiveness can encourage people to dream again and not limit themselves.
“I’ve seen firsthand how freedom comes from that, what positivity can come from that freedom,” Rasure says, “And how people change their perceptions not only of themselves, but also of how they act in this world.”
Less debt to pay off can also mean more money for yourself. And having access to more money would give you the opportunity to buy a house, buy a nicer car or do other things you didn’t anticipate would be within your budget, Rasure adds.
- You won’t feel as compelled to make a job decision based on income. Often when considering jobs, people likely calculate how much money they need to make to pay off college loans, Rasure says. But if that debt disappeared, more people would be able to focus on what makes them happy.
Rasure witnessed how the loan forgiveness positively impacted her sister-in-law, who was able to consider unique opportunities in her field after she was clean of her $300,000 debt. Her brother’s wife, a public defender, relied on student loans to get her law degree, and after serving the public for 10 years, her loans were forgiven.
For others, the freedom that comes with debt relief may mean serving in a low-income community as a doctor, teacher, or other service-oriented occupations that typically come with a lower salary.
“We can pursue opportunities that may not pay us as much money, but can create a greater social impact in the world,” Rasure says.
- More money can be put aside for retirement. In preparation for your later years in life, you can invest the money you would have used for your loan payments in a retirement plan, Rasure notes.
This would make it easier not only on yourself, but also on your children, who will likely be responsible for how you will be taken care of. Additionally, many parents have taken out loans for their children to attend school and are struggling while carrying that debt.
“Obviously parents, in most situations, really love their children, want the best, and will make every possible sacrifice,” says Rasure, “But parents are coming to retirement age, or even are retired and still paying off student loans for their children.”
Overall, Rasure envisions student loan forgiveness positively impacting mental health collectively.
“Widespread student loan forgiveness will help society on a very mobile level, which means it will help employers, workers, family relationships and the economy.”
Register now: Get smarter about your money and your career with our weekly newsletter
Don’t miss: