The Biden administration announced its student loan forgiveness plan which will be a huge relief for millions of borrowers.
Working- and middle-class Americans are being absolved of up to $10,000 in federal student loans, and Pell Grant recipients within the designated income threshold may have up to $20,000 in student debt canceled.
As of 2022, the student loan debt toll in the U.S. is close to 1.75 trillion dollars, according to the Federal Reserve's Board of Governors. Roughly 43 million borrowers have federal student loan debt with an average balance of over $37,000, 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 Erika Rasure, financial therapist and founder of Crypto Goddess.
"Many borrowers feel like they were basically sold a bill of goods under false pretenses," says Rasure, "Not only do you have the guilt of not being able to pay the loans back, but you have the shame."
On the flip side, canceling student loans will likely have the opposite effect and allow graduates to pursue the dreams and careers that mountains of debt have never allowed them to.
"When you have this big harness hanging over your head, it really clouds the things you thought you were going to be able to do with your degree," Rasure says. "I think student loans have been the soul-crusher of dreams to be honest with you."
Here are three ways student loan forgiveness could improve borrowers' mental health.
- It could give you a sense of freedom. With less debt hanging over your head, you'd be a lot more likely to pursue opportunities that didn't seem possible before, says Rasure. She believes loan forgiveness may 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," says Rasure, "And how people change their perceptions of not only themselves, but how they operate in this world."
Less debt to pay off could also mean more money for yourself. And access to more money would give you the chance to purchase a home, buy a nicer car or do other things that you didn't anticipate would be within your budget, Rasure adds.
- You won't feel as compelled to make an income-based job decision. Often when considering jobs, people likely calculate how much money they'd need to make to pay off loans from college, Rasure says. But if that debt disappeared, more people would be able to focus on doing what makes them happy.
Rasure witnessed how loan forgiveness positively impacted her sister-in-law who was able to consider unique opportunities in her field, once she was clear 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 could mean serving in a low-income community, as a doctor, teacher or other service-oriented professions that typically come with a lower salary.
"We can pursue opportunities that might not pay us as much money, but might create a greater social impact on the world," says Rasure.
- More money can be put aside for retirement. In preparation for your later years in life, you could invest the money you would have used for your loan payments into 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'll be taken care of down the line. Additionally, many parents have taken out loans for their children to attend school and are struggling as they carry that debt.
"Obviously parents, in most situations, really love their kids, want what's best and will make every sacrifice possible," says Rasure, "But parents are coming up on retirement age, or are even in retirement, and are paying off student loans for their children still."
Overall, Rasure foresees student loan forgiveness positively impacting mental health collectively.
"Widespread student loan forgiveness will help society at a very cellular level, meaning it will help employers, workers, family relationships, and the economy."