{"id":144513,"date":"2022-09-02T11:47:05","date_gmt":"2022-09-02T17:47:05","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=144513"},"modified":"2023-08-08T14:57:31","modified_gmt":"2023-08-08T20:57:31","slug":"student-loan-forgiveness-plan","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/student-loan-forgiveness-plan","title":{"rendered":"Here&#8217;s How Biden&#8217;s Student Loan Forgiveness Plan Affects Real Estate\u2014You Probably Guessed It Already"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC8168514299&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n\n<p><span style=\"font-weight: 400;\">The Biden Administration announced its student debt forgiveness plan a couple of weeks ago. Under the program, college graduates earning under $125,000 a year and married couples or heads of households earning under $250,000 per year will see up to $10,000 of their Federal student loans canceled. Pell grant recipients will see up to $20,000 of student debt written off.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">The move was welcomed by millions of college graduates struggling to repay student debt, but it also has been met with contradicting assessments by economists and others.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">You might think this doesn\u2019t matter for those of us in the real estate industry, but you\u2019d be wrong to think that. Here\u2019s what you need to know about the program\u2019s economic implications.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">More Inflation<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">The announcement of the student loan forgiveness plan immediately sparked an intense debate about the implications for <a href=\"https:\/\/www.biggerpockets.com\/blog\/inflation-is-not-going-away\" target=\"_blank\" rel=\"noreferrer noopener\">inflation<\/a>. The U.S. is already experiencing 40-year highs in inflation coupled with slowed economic growth. Some economists have raised concerns about the student debt relief program exacerbating this trend.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">The most pessimistic prognosis comes from the <\/span><a href=\"https:\/\/www.crfb.org\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Committee for a Responsible Federal Budget<\/span><\/a><span style=\"font-weight: 400;\">. The organization asserts that canceling student debt undermines the \u201c<\/span><a href=\"https:\/\/www.crfb.org\/blogs\/cancelling-student-debt-would-undermine-inflation-reduction-act\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Inflation Reduction Act<\/span><\/a><span style=\"font-weight: 400;\">\u201d and pushes inflation \u201cup to 15 basis points up front and [creates] additional inflationary pressure over time.\u201d<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">However, not all economic think tanks agree. The <\/span><a href=\"https:\/\/rooseveltinstitute.org\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Roosevelt Institute<\/span><\/a><span style=\"font-weight: 400;\"> offers an opposite prediction, saying that the student debt relief program would <\/span><a href=\"https:\/\/rooseveltinstitute.org\/2022\/08\/17\/canceling-student-debt-would-increase-wealth-not-inflation\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">generate wealth, not inflation<\/span><\/a><span style=\"font-weight: 400;\">. The Institute explains that there is a flaw in the budgeting model that treats student loans and incurred interest \u201cas if the foregone principal and interest payments over the entire lifetime of the loan all occur immediately.\u201d Instead, it advises looking at the effects of the student loan forgiveness plan over two decades. Similar relief programs and subsidies, such as Affordable Care Act subsidies for prescription drugs, have been found to reduce, not increase the deficit over decades.&nbsp;&nbsp;&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">The Roosevelt Institute also points out that the decrease in student loans would increase spending (called \u2018the wealth effect\u2019), which is good for the economy overall. However, it should be noted that more money in consumer pockets can continue to drive up demand, which can further enhance our supply issues, thus driving up prices.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">Mark Zandi, Moody&#8217;s Analytics chief economist, says the effect on inflation is \u201clargely a wash.\u201d According to Zandi, writing off<\/span> <span style=\"font-weight: 400;\">$10,000 in student debt per applicant will increase inflation by just 0.08%.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">But What About Taxpayers?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">Immediately following the announcement, many media outlets reacted with alarm about the potential implications for taxpayers, with one article by the <\/span><a href=\"https:\/\/www.ntu.org\/foundation\/detail\/cost-of-student-debt-cancelation-could-average-2000-per-taxpayer\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">National Taxpayers Union Foundation<\/span><\/a><span style=\"font-weight: 400;\"> claiming that the student debt relief program could end up costing an extra $2,000 per taxpayer.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">However, the data modeling used to obtain that figure was the fact that almost a third of those who would be filing for student debt relief are joint, not solo applicants. The other thing to bear in mind is that the overall number of U.S. taxpayers increases over time, so the overall share of the tax burden of student debt forgiveness will decrease over time.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">Finally, the taxpayer may end up not paying anything at all, with the cost of the student debt forgiveness program to be offset by cuts to spending in other areas.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">So Who Benefits Most?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">Obviously, college graduates on lower incomes will benefit the most from the loan forgiveness program. Despite some economists voicing concerns about the program potentially lining the pockets of wealthier college graduates who don\u2019t need student debt relief, <\/span><a href=\"https:\/\/budgetmodel.wharton.upenn.edu\/issues\/2022\/8\/23\/forgiving-student-loans\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">The Penn Wharton budgetary model<\/span><\/a><span style=\"font-weight: 400;\"> from the University of Pennsylvania estimates that \u201cbetween 69 and 73% of the debt forgiven accrues to households in the top 60% of the income distribution.\u201d<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">This translates as anyone earning less than $82,400. Although some high earners (those with solo incomes of over $125,000 annually) will end up benefiting from the program. However, the Penn Wharton model demonstrates that this will make up less than 5% of applicants.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">What Should a Debt Relief Applicant Do With The Extra Money Saved Each Month?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">If you are one of the many college graduates who will see a part of their student debt written off, you may be wondering whether you should use the extra cash to invest.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">First, you\u2019ll have to be realistic about how much cash will be freed up. $10,000 isn\u2019t a huge amount considering that the median amount of student debt per household in the U.S. is $28,950, according to <\/span><a href=\"https:\/\/www.forbes.com\/advisor\/student-loans\/average-student-loan-statistics\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Forbes<\/span><\/a><span style=\"font-weight: 400;\">. In some states, this figure is closer to $40,000. <\/span><a href=\"https:\/\/www.forbes.com\/advisor\/student-loans\/average-student-loan-payment\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Monthly student loan repayments<\/span><\/a><span style=\"font-weight: 400;\"> are around $200-$300, so most college graduates would only see an extra $100 per month, and in many instances less.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">However, even this small amount of extra cash could help propel some of your investments, especially if you\u2019re already prioritizing savings each month.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">An easy way to get into real estate is by looking into crowdfunded real estate platforms, such as <\/span><a href=\"https:\/\/t.sidekickopen84.com\/s3t\/c\/5\/f18dQhb0S7kF8cpngfW16gy-_59hl3kW7_k2841CX6NGN35Qwt3rN_mgW56Jw3w1HcgXpf197v5Y04?te=W3R5hFj26QkH2W4hJTY63T3pkxW3Fbt5S3Cdl5cf49M_4s04&amp;si=8000000019411002&amp;pi=6988e0ed-1aea-4af5-9769-8a0de4675eeb\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Fundrise<\/span><\/a><span style=\"font-weight: 400;\">. These allow you to become a co-owner of a rental property, often with as little as $1,000 upfront costs and small monthly payments. Alternatively, you can use the extra cash to go toward your down payment savings.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">If you\u2019re one of the potential beneficiaries of this announcement, we encourage you to use the extra money each month towards savings and investments.<\/span><\/p>\n\n\n\n<div class=\"wp-block-group alignwide\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<hr class=\"wp-block-separator has-css-opacity\"\/>\n\n\n\n<hr class=\"wp-block-separator has-css-opacity\"\/>\n<\/div><\/div>\n\n\n\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-2\/3 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Buy your first house with your eyes wide open<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Outsmart the world\u2019s most common financial trap! From BiggerPockets CEO Scott Trench and podcast co-host Mindy Jensen, learn how your home purchase can destroy your wealth\u2026 or generate even more. <\/p>\n\n\n\n<div id=button-custom-event-block_64134fe56b103 class='button-custom-event'>\n      <a href=\"https:\/\/store.biggerpockets.com\/products\/first-time-home-buyer?utm_source=blog&#038;utm_medium=marketing_block\" x-on:click=\"window.analytics.track(&#039;Blog Block | Publishing: FTHB&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/student-loan-forgiveness-plan&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Get Your Copy<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/first-time-home-buyer.jpeg\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>The Biden Administration announced its student debt forgiveness plan a couple of weeks ago. Under the program, college graduates earning under $125,000 a year and married couples or heads of [&hellip;]<\/p>\n","protected":false},"author":613618,"featured_media":144515,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5528,7119],"tags":[],"class_list":["post-144513","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-news","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/144513","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613618"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=144513"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/144513\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/144515"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=144513"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=144513"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=144513"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}