What Scholar Mortgage Forgiveness Means for Debtors Who Did not Graduate

Like many borrowers, Halid Hamade, 28, is poised to benefit — at least somewhat — from student loan forgiveness.

After President Joe Biden announced he would forgive $10,000 of federal education debt and up to $20,000 for Pell Grant recipients reaching the income limit, Hamade said he was happy.

Still, “it’s not enough,” he said.

Hamade currently owes about $100,000 in federal and personal loans from college. He’s also one of the nearly 40 million college students who don’t have a degree to back that debt.

The business major was on track to graduate in 2016, but ran out of funds in his senior year, he said. Hamade said he was denied additional loans, making it almost impossible to remain enrolled at Penn State University. “At that point, it was out of my hands.”

Instead, Hamade dropped out of school and completed Merit America’s professional IT support certification program, which lasted less than four months. He now works as an integration engineer in Washington, DC

Halide Hamade

Source: Merit America

Non-completers face higher financial burdens

For students entering college and not graduating, managing educational loans without the benefit of a degree — and the increased earning potential that comes with it — is particularly difficult.

The default rate among borrowers who leave with student debt but no degree is three times higher than the rate among borrowers who have a degree.

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According to a report by the National Student Clearinghouse Research Center, around 39 million Americans have attended college at some point but have not earned a degree.

Although college graduation rates are rising, only about 63% of students enrolled in four-year institutions complete their degrees within six years, the National Center for Education Statistics also found.

According to a separate report by education lender Sallie Mae, most students who drop out of college said it was because of a loss of motivation or a life change. Others cite financial concerns followed by mental health issues.

“The non-graduates are often first-generation college students from underserved communities,” said Rick Castellano, spokesman for Sallie Mae.

Those who graduate from college are more likely to grow up in higher-income households and have at least one parent who earned a college degree, the report found.

Graduates are also better prepared when it comes to college pay: 42% said they had a plan before they enrolled on how to pay for each college year, while only 26% of non-graduates could say the same . (Other studies show that students are more likely to enroll in college when they are aware of the financial resources they have available to fund it.)

“Having a plan to pay for college or have those conversations sooner goes a long way,” Castellano said.

Forgiveness Doesn’t Mean “Tackling the Bigger Problem”

After Biden’s historic student-loan forgiveness announcement, colleges still face a larger affordability crisis, experts say.

“That’s what I’m concerned about,” said Hafeez Lakhani, the founder and president of education-focused Lakhani Coaching in New York. “When I heard about the lending, I thought it was misguided.”

“They don’t address the larger problem we have ahead of us, which is the drop in enrollment,” he said. “The enrollment decline is absolutely related to affordability.”

Average tuition and fees increased again in the 2021-2022 academic year, reaching $10,740 for domestic students in four-year public schools, according to the College Board, which tracks trends in college pricing and student aid. Average tuition and fees at four-year private institutions reached $38,070.

This year, some colleges are raising tuition by as much as 5%, citing inflation and other rising costs.

Most students have to borrow something to cover at least part of the bill. More than 40 million Americans now owe a combined $1.7 trillion in student debt, a balance that has tripled since the Great Recession.

Faced with rising tuition fees, growing student loan strains and increased labor demand, students like Hamade are increasingly choosing alternative career paths instead of four-year colleges, studies show.

However, studies show that college graduates will earn nearly $1 million more over the course of their careers, and many continue to believe that getting a degree is worth it in the end.

If he could do it again, Hamade said he would try to get his diploma but do it less expensively.

“If I were 18 now, I would go to community college and get a bachelor’s degree the cheapest way possible,” Hamade said.

“I still see that as a way for people to move forward,” he added.

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