Student Loan News: Millennial Money Woes and New Debt-Relief Proposals

Welcome to Student Loan News, a weekly summary of developments and events affecting college debt in the U.S. Join us each Friday for a look at goings-on that could impact your own student loan situation.

Survey looks at the money struggles of younger adults

More than one-third of college grads aged 18-34 with student loans said “the debt wasn’t worth it,” at least according to a recently released survey from investment bank Merrill Lynch and research firm Age Wave.

The survey found that the average student loan borrower in that age group will spend 9% of their pretax income paying off their school debt for a typical 10-year repayment. And those with college debt contribute half as much on average to their retirement compared with their peers with no debt, creating a financial ripple effect far into the future, it said.

Among other findings: About a quarter of 18- to 34-year-olds with a 401(k) accounts have taken an early withdrawal — something you would only want to do as an absolute last resort — and more than half of respondents (58%) said they wouldn’t be able to afford their current lifestyle without the help of their parents.

How it affects YOU: It’s no secret that millennials have it rough, but this doesn’t mean that younger Americans can’t rise to financial success despite the times we live in. You can tap various strategies for getting out of debt quicker, as well as ways to become more financially independent from your parents.

Also note that research generally shows college to be worth the cost, once you account for the difference in earnings between those with and without degrees.

More student loan initiatives sprouting on Capitol Hill

The recent parade of plans to tackle student loan forgiveness and repayment is rolling onward, with a pair of new proposals to help borrowers.

First, a bill introduced earlier this month is sparking debate. The legislation, from Sen. Jeff Merkley (D-Ore.) and Rep. Rosa DeLauro (D-Conn.), would streamline repayment plans into just two: a standard 10-year plan and an income-driven option similar to the current Income-Based Repayment and PAYE programs.

The proposed bill would also seek to end interest capitalization on student loans, limit how much the government can seize in a student-loan wage garnishment and allow those on income-driven repayment to automatically recertify for the program each year.

The proposal was met with pushback this week from the conservative American Enterprise Institute, which said the language in the bill would allow some students to get out of paying most of the interest on their loans and was introducing “a giant new loan forgiveness program” by stealth.

Also this week, U.S. presidential candidate Sen. Elizabeth Warren (D-Mass.) and a group of fellow Democrats called for adding language to an appropriations bill in order to make Public Service Loan Forgiveness easier to get. This one is different than the “five-year PSLF” proposal we reported on last week — here, it simply wants to ease the rules about counting eligible payments to qualify for forgiveness.

How it affects YOU: As with many of the bills and proposals at the federal level, the chances for passage are low for now, given the divided government and high levels of partisanship in national politics these days. That said, don’t forget to call your senators and your representative and urge them to advocate for rules that ease the burden of student debt. Likewise, keep watching this weekly news report for developments!

Also in the news …

  • The Department of Education issued guidelines to schools on Monday, advising them on how to discuss financial aid with students. Recommendations included avoiding the term “award letter” for financial aid offers, making sure those letters include which “critical next steps” recipients need to take and listing different types of aid (grants, loans, work-study, etc.) separately.
  • A commission with the nonpartisan American Bankruptcy Institute (ABI) is calling for a loosening of the rules on discharging student loan debt through bankruptcy. Currently, federal student loan discharge is extremely difficult, but the ABI wants to return to older rules that allow discharge seven years after the loans are taken out.

News can be useful, but if you want some deeper advice, take a moment to sign up for the Student Loan Hero weekly digest email and get valuable financial knowledge sent straight to your inbox … for free!

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