Will My Students Loans Be Forgiven - or Not?
Will President Biden forgive student loans? If not, when will I start having to pay my student loans back again? These are the questions that have plagued over 43 million borrowers — who share a cumulative $1.6 trillion in student loan debt — for some time now, especially in light of the financial stressors that the past few years have put on many Americans. So… what’s taking so long?
The answer is, as usual, more complicated than it seems.
What Has Been Done to Ease or Cancel Student Loans?
Reuters reports that the following steps have already been taken to ease the decades-long student loan burden borne by many borrowers:
During the first year of the Biden presidency, over $17 billion in student debt belonging to approximately 725,000 borrowers was canceled.
At least 40,000 student loan borrowers will benefit from debt cancellation for their student loans, thanks to the Public Service Loan Forgiveness program.
Thousands of borrowers with older loans will see loan forgiveness via their Income-Driven Repayment plan, and another 3.6 million should receive an additional 3 years of credit toward IDR plan repayment and forgiveness.
Repayment for many student loans has been paused since the beginning of the COVID-19 pandemic, and the date that those payments will resume has been pushed back a total of six times. According to the Department of Education’s Federal Student Aid office, the current payment pause for eligible student loans has been extended through August 31st of 2022. This pause still includes a temporary 0% interest rate for paused loans, plus suspended collections on defaulted loans.
When Can We Expect Further Student Loan Forgiveness or Additional Relief Measures?
Here’s the tricky part. Many proposals have been made regarding how best to approach the promised student loan relief that’s been anticipated since President Biden took office. The problem is, there are a lot of cooks in the kitchen, and while most of them seem to agree that debt relief for student loan borrowers is a priority, few of them agree to what extent that relief should be given, and how.
Forbes reports that the many proposals include such goals as up to $50,000 in relief for each borrower (one proposal cuts that amount to $25,000), an extension of existing public service forgiveness programs to health care workers and teachers, further extension of the repayment pause, and even cancellation of most or all student loans altogether. These and other proposals, including the rumored permanent reduction of student loan interest rates to 0%, would need to be approved by Congress first and then signed by the President. Unfortunately, that’s proven a tricky road due to the balances of power in the various branches of our government.
What’s almost certain, for now at least, is that repayment will resume at some point for borrowers who’ve enjoyed the payment pause on eligible loans. Are you ready to begin repayment when that happens? Here are a few tips to prepare for whenever that might occur.
How to Prepare for Student Loan Repayment to Resume
Check Current Repayment Terms
The most important step in preparing for repayment of student loans is to know what to expect in terms of what’s owed. Whether you were in repayment prior to the COVID relief or you have yet to start paying back your loans, start by checking your balances and loan types at studentaid.gov. Through this official site, you can easily view your loan balance(s), payment due dates, servicer details, and monthly payment amount(s) for federal student loans.
These details, particularly the monthly amount due, offer a smart starting point for planning your repayment strategy. If you aren’t sure if the listed monthly payment on all of your loans fits well within budget, do some number crunching. Add up your expenses including your student loan obligation and subtract that total from monthly income. If you have money leftover after that calculation, you’re likely in good shape for when repayment starts again. For those who have a shortfall in that calculation, consider some of our other tips to bring your monthly student loan payment(s) down.
Ensure Auto-pay is Active
Borrowers who were in repayment with automatic payments turned on before COVID forbearance was enacted will automatically resume auto-payment whenever Congress restarts the repayment clock. Be sure to check with your servicer to ensure that nothing got lost in translation between then and now, though. You can either call your servicer or log-in online to check your auto-pay status.
Auto-pay on student loans often provides a small interest rate reduction automatically, which helps toward total repayment. More importantly, however, having monthly payments automatically drafted from your bank account removes the worry of missing a payment in the future.
Evaluate Refinance or Consolidation Options
For those who feel the monthly payment just isn’t going to jibe with their budget or cash flow, a few options exist. First, consolidation through the Department of Education allows borrowers with eligible loans to consolidate several federal student loans into a single or fewer loans. While this step won’t necessarily reduce your interest rate or decrease your loan balance, it will put you in a position to opt in to other repayment plan options. Graduated, extended, and income-based repayment plans with a consolidated loan may come with a lower monthly payment that fits better within your budget.
Refinancing student loans is also an option. Unlike consolidation, refinancing involves getting a new loan with a private student loan lender. The potential benefit with refinancing is that private lenders may offer lower interest rates, extended repayment terms, or a combination of the two. These features can reduce the monthly payment. However, refinancing also takes away the inherent benefits of federal student loans, including forbearance, deferment, and potential forgiveness, should that come to fruition in the future. It is crucial to consider these pros and cons before taking the refinancing path.
Consider Income-Based Repayment
Income-based repayment plans are offered to nearly all borrowers with federal student loans who have consolidated or who have other eligible loan types. These repayment plans are designed to help those with low to moderate income, as well as those with significant student loan balances. Under an income-based repayment plan, your monthly payment is based on a percentage of your discretionary income. Also, income-based plans extend repayment terms to 20 or 25 years, compared to the standard 10-year repayment term. The combination of income-driven payment calculations and an extended repayment term help drastically lower the monthly payment for some borrowers.
If you aren’t sure whether you qualify for an income-based repayment plan or where to start, contact your loan servicer. They will be able to provide the options available to you based on your loan type, balance, and income, and they can walk you through the process of applying for an income-based plan before repayment begins again.
The Bottom Line on Student Loan Repayment
Whenever student loan repayment kicks in, it is crucial to be prepared. Start with knowing what you owe, and then take the time to check in with your budget and cash flow to set the stage for next steps. Consider your options for consolidation, refinancing, and income-based repayment based on your financial situation.
If you need help figuring out the best plan of action for your specific scenario, don’t be afraid to get in touch. We are here to help ensure you’re ready — mentally and financially — to tackle student loan repayment when the time comes.