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The Impact of Student Loan Forgiveness Could Be Huge for Net Worth

Updated: Sep 23, 2022

Some Borrowers Could See Their Net Worth Double Overnight

female student with laptop pointing toward coins with dollar signs

With tuition costs ballooning over the last thirty years—outpacing relative growth in wages and wealth—many students have little choice but to take out student loans, accumulating $37,358 in federal loans per person on average, adding up to $1.7 trillion nationwide.

To many students’ relief, President Joe Biden recently announced the government would forgive up to $20,000 in federal loans. While student loan forgiveness has been a hot topic in national policy debates for years, it’s perhaps the most significant national student loan forgiveness program to date. The program is designed to forgive an estimated $519 billion in student loans, compared to just over $10 billion distributed by the Public Service Loan Forgiveness (PSLF) program since its inception in 2007.

College grads with student loans will finally have an opportunity to get out of debt and build their net worth faster than ever before. Hive Wealth analyzed 2020 Census data and found that people who owe money on student loans across all demographics have an average net worth of $19,791. The full $20,000 in loan forgiveness would practically double their net worth overnight.

Do the Math

Consider the average federal student loan amount of $37,358 and the average interest rate of 4.12%. Then, calculate how much a recent grad pays over their ten-year plan—assuming they make the minimum $380 monthly payment without fail. When all is said and done, the loan incurs $8,286 in interest, and the student pays $45,644.

Curious about the total interest incurred on your loan? Use this student loan calculator to find out.

The real cost of student loans far exceeds $45,644 when you consider inflation and lost opportunities—college grads with student loans don’t have the same cash reserves to invest and build their wealth. A college graduate weighed down by student loan payments will likely delay investments in stocks, real estate, and retirement accounts (to name a few) that can outpace inflation and increase their net worth.

Forgive and Invest

Let’s explore how the $20,000 from the federal loan forgiveness program impacts your net worth. Assuming you qualify for the full amount, you would be left with just $17,358 in loans. And with a 4.12% interest rate, your minimum monthly payment drops to $177. You incur $3,850 in interest and end up paying $21,208 after ten years.

Essentially, student loan forgiveness immediately increases your net worth by $20,000—and saves an additional $4,436 in interest over ten years.

The benefits of loan forgiveness on your net worth are even further reaching when you consider investment potential. The funds you would have allocated for student loans could go toward stock investments, a certificate program to advance your career, buying real estate, or starting your own business—assets that could drastically increase your net worth and build generational wealth.

For example, in this scenario, you’re paying $177 instead of $380 every month—netting a $203 difference. If you made a $203 monthly stock investment with a 7.58% average return rate, it would grow to $36,713 in ten years, earning you $12,150 in interest. Want to play with these numbers? Use this investment calculator.

Find Out If You Qualify

The government offers a variety of federal loan forgiveness programs and other ways to help repay federal loans. Here are some resources to help you discover which programs are a match for your particular situation.

The government will forgive up to $20,000 in federal student loans. Applicants can sign up for updates and apply for the program in early October 2022. Applications are open until the end of 2023.

If you’ve worked in public service for at least ten years (federal, state, local, tribal government, or nonprofit), you might qualify to have all your student debt canceled.

Teachers who have worked full-time for five complete and consecutive years in a low-income school or educational agency may qualify for up to $17,500 in loan forgiveness.

If you’ve served in the armed forces, you may qualify for interest rate caps, deferment, or loan forgiveness.

Those who have completed their term of national service in an approved AmeriCorps program (AmeriCorps VISTA, AmeriCorps NCCC, or AmeriCorps State and National) are eligible for loan forgiveness.

When your school closes while you’re enrolled or soon after you withdraw, you may qualify for a discharge of your student loans.


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