The Biden administration announced its student loan forgiveness plan that will be a big relief for millions of borrowers.
Working- and middle-class Americans are being offered up to $10,000 in federal student loan forgiveness, and Pell Grant recipients within specified income thresholds can write off up to $20,000 in student loans.
By 2022, the student loan debt toll in the United States is close to $1.75 trillion, according to the Federal Reserve’s Board of Governors. About 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 loans for college in hopes of a better future were told the investment would pay off in the long run, says Erica Rasure, financial therapist and founder of Crypto Goddess.
“Many borrowers feel like they’ve been sold a bill of goods under false pretences,” Rassure says, “You’re not only to blame for not repaying the loan, but you’re also ashamed.”
On the flip side, canceling student loans can have the opposite effect and allow graduates to pursue dreams and careers that a mountain of debt would never allow.
“When you have this big harness hanging over your head, it really clouds the things you think you’re going to be able to do with your degree,” Rasure says. “I think student loans have been a dream soul crusher to be honest with you.”
Here are three ways that 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’ll be more likely to pursue opportunities that didn’t seem possible before, says Rusure. She believes debt forgiveness can encourage people to dream again and not limit themselves.
“I’ve seen firsthand how freedom comes from that, the positivity that can come from that freedom,” says Rasure, “and how people change not only themselves but their perceptions of how to operate in this world.”
Even less debt to pay off can mean more money for yourself. And having access to more money will give you the opportunity to buy a house, buy a nicer car or do other things you didn’t expect to be within your budget, Rasure adds.
- You won’t feel forced to make a job decision based on income. Often when considering jobs, people calculate how much money they’ll need to make to pay off college debt, says Rusure. But if that debt disappeared, more people would be able to focus on what makes them happy.
Rasure saw how the loan forgiveness positively impacted her sister-in-law who was able to consider unique opportunities in her field after she was freed from her $300,000 debt. His brother’s wife, a public defender, relied on student loans to get her law degree and after serving the public for 10 years, her debt was forgiven.
For others, the freedom that comes with debt relief means serving in low-income communities, working as doctors, teachers or other service-oriented professions that typically come with low pay.
“We can pursue opportunities that don’t pay us a lot of money, but can have a huge social impact on the world,” says Rusure.
- More money can be set aside for retirement. In preparation for the later years of your life, you can invest the money you used to pay off your debt in a retirement plan, Rasure notes.
This will make it easier not only on you, but also on your children who will likely be responsible for how you will be taken care of down the line. Additionally, many parents have taken out loans to send their children to school and are struggling to pay off that debt.
“Obviously parents, in most situations, really love their kids, want what’s best and will make all the sacrifices possible,” Rassure says, “but parents are approaching retirement age, or even in retirement, and paying off student loans. Their kids are still .”
Overall, Rasur predicts that student loan forgiveness will have a positive effect on mental health collectively.
“Broad student loan forgiveness will help society on a very cellular level, meaning it will help employers, workers, family relationships and the economy.”
Sign up now: Be smart about your money and career with our weekly newsletter