Student loans cancellation brings relief for Chicago-area borrowers
CHICAGO (CBS) – On Wednesday, President Joe Biden announced a new plan to cancel thousands of dollars in debt for millions of borrowers.
CBS 2's Tim McNicholas dug into the plan, who qualifies and how it will affect local borrowers.
Take the Illinois Institute of Technology (IIT) for example, an on-campus student there pays more than $70,000 a year, and this isn't even the most expensive school in Chicago.
That adds up to a whole lot of debt, a chunk of which could now be erased.
Tom O'Connell, of Mount Greenwood, graduated from Carthage College in 2011 with $30,000 worth of debt.
"It's brutal," he said.
He's chipped away ever since, knocking it down to $7,900, even though much of his payments went directly to interest.
"Flushing money down the toilet, 200 bucks a month, every month," he said.
Under President Biden's plan, O'Connell qualifies for $10,000 in relief, which would eliminate the remainder of his debt.
"[It's] one more thing I don't have to have on a checklist," he said.
O'Connell is happy, but Biden's plan faces scrutiny from both conservatives and progressives.
Sen. Bernie Sanders (I-Vermont) called the action an important step forward, but tweeted that more needs to be done.
While Sen. Mitt Romney (R-Utah) said the plan is unfair to people who already paid their own way, and it can fuel inflation, a common belief among people who fear less debt will mean more spending.
There are those that argue that this will make the inflation problem even worse, but is that true?
"No, I disagree with that," said Northwestern University finance professor Phillip Braun.
Braun pointed out that payments have been paused since early in the COVID-19 pandemic.
"The borrowers are not going to get checks in the mail," he said. "They're simply going to have their payments eliminated or reduced and that's something that affects them across time."
So would this action make borrowers like O'Connell change their spending habits?
"Um -- no," he said.
He plans on saving those $200 a month.
And the other part of the issue includes the payment pause coming to an end starting Jan. 1, 2023.
Braun said borrowers will need to prepare for that because if they can't pay, it could hurt their interest rate and credit.