President Biden’s recent decision to write off hundreds of billions of dollars in collective debt for student borrowers is expected to wipe out the balances of about 20 million people across the country. But that still only reduces the overall amount of student debt in the United States by a fraction, a total of about $1.75 trillion. And while there are concerns about how Biden’s plan will affect the overall economy when it comes to inflation, in particular, it could bring much-needed financial relief to many households.
With rising prices and the looming prospect of a recession, millions of Americans are also feeling an increased sense of financial insecurity, according to the latest report from Elevate, an online credit provider. The report, produced by the company’s internal Center for the New Middle Class, and which surveys more than 22,000 respondents each month, finds that financial insecurity is currently the highest it has been for consumers ” prime” (those with credit scores of 700 or higher) since 2018, and non-prime (those with scores below 700). According to the data, 19% of prime consumers feel less financially secure than a year ago, and 37% of non-prime consumers do too.
In addition to feelings of financial insecurity which tend to increase, household spending is also increasing in both groups. Household incomes, meanwhile, are on the decline. Altogether, the data clearly shows that Americans are feeling the financial squeeze far more than they did a year ago.
Households in student loan debt likely feel that pinch more intensely than those that don’t, says Jonathan Walker, executive director of the Center for the New Middle Class. “If you have student loans, you’re much more likely to borrow money in other ways. This is an indication of the fragility of many people’s finances. For that reason, Walker says he thinks Biden’s recent decision on student loan debt will come in handy for a lot of people, even though the administration has received mixed messages among those who support him and those who call him out. a “alms”.
Walker also points to another critical aspect of the student loan story that often goes unnoticed: There are millions of Americans who have student loan debt, who haven’t graduated. “You hear a lot of people say if it’s a transfer of wealth to people with a college degree, and the reality is there’s a huge percentage of people who don’t get a degree. he says.
Among unprivileged consumers with student debt, Walker says, 44% haven’t graduated, and among privileged consumers, the figure is 25%. “One of the challenges is that people try college, it doesn’t work out, they go into debt and don’t see any of the benefits of improved income that comes with a degree.”
Government data shows that the graduation rate of students earning a bachelor’s degree from public, private, and nonprofit institutions is just 64 percent. Thus, more than a third of students who enter four-year colleges likely leave with debt, but without a degree, further hampering their earning capabilities. These are the people, Walker says, who could gain the most from the Biden administration’s plan.
“It’s a flawed policy, but for better or worse, it doesn’t really benefit the dentist who makes hundreds of thousands of dollars,” Walker says. “The data we have clearly indicates that this is not just a popular document, and that there is a real impact on student loan balances, and what that does to people’s finances. “