President Joe Biden has promised to make his decision on canceling student loans “by the end of August”.
This means that tens of millions of Americans could know the future of their debt in days or weeks.
Here are five things borrowers can do while you wait for more news, to prepare for a possible loan cancellation announcement.
1. Determine if you could be included in the succession
The loan forgiveness may exclude borrowers who earn more than a certain amount, likely in part to appease critics who say the policy would direct taxpayer resources to the wealthy.
Specifically, those who earned more than $125,000 or $150,000 as single filers in the previous year, or $250,000 or $300,000 as couples who filed their taxes jointly, may be excluded, depending on Washington Post reports.
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Meanwhile, in a recent insider document obtained by Politico, the US Department of Education’s plan to write off debt would include graduate student loans; student loans for parents, known as Parent PLUS loans; and Federal Family Education Loans (FFEL), which are federal loans held by private entities, in addition to major direct-lending federal student loans. (The White House will likely have the final say, however, on qualifying loans.)
“As far as private student loans go, it seems highly unlikely that they will be included in the forgiveness plan,” said Elaine Rubin, senior contributor and communications specialist at Edvisors.
2. Avoid “rushed action”
According to higher education expert Mark Kantrowitz, the chances of student borrowers seeing their balances reduced or eliminated have never been greater.
Biden has promised to write off some of the loans and there are reports the administration is considering a $10,000 per borrower write-off plan. Moreover, 60% of American voters now say they favor debt cancellation in one form or another.
Even so, Kantrowitz said, “until the legislation is enacted, you can’t count on anything.”
“Borrowers should not take hasty action in anticipation of loan forgiveness,” he added.
In other words, you’ll want to wait to celebrate right away and wipe student loans off your budget.
3. Assess the potential impact on your debt
Currently, the main point of contention between lawmakers and advocates is how much debt to eliminate: $10,000 or $50,000?
Canceling $10,000 of student debt for everyone would cost the federal government $321 billion and wipe out the balances of almost 12 million people entirely. By contrast, forgiving all borrowers $50,000 will cost $904 billion and leave 30 million students debt-free.
Even under this more generous plan, not everyone would be completely satisfied.
One-fifth of federal student loan borrowers owe more than $50,000, and about 7% of borrowers have balances above six figures.
4. Take advantage of the payment break
Most federal borrowers don’t have to pay their bills until at least September, thanks to the Covid pandemic-era pause on bills that’s been in effect since March 2020. The pause could still be extended.
Given that $10,000 in student loan forgiveness is the proposition most likely to materialize, Betsy Mayotte, president of the Institute of Student Loan Counselors, a nonprofit organization, said she sees nothing it’s hard for people who owe less than that to redirect their usual payments to savings until we hear more about forgiveness.
Even if you owe more than $10,000, it may still be a good idea to take advantage of the government’s pause on student loan repayments. You can use the extra money instead to clear high-interest credit card debt, for example, or to build up your emergency savings.
Important note: If you are enrolled in an income-driven repayment plan or want to get a government loan forgiveness, you definitely don’t want to continue repaying your loans.
This is because months during the government’s payment break still count as eligible payments for these programs, and since they both result in forgiveness after a certain period of time, any money you throw at your loans during this time only reduces the amount you will end up getting. excuse.
5. Weigh Consolidation Options
Millions of people who took out student loans before 2010 under the FFEL scheme have been left out of the government’s offer to suspend their interest-free payments. It is feared that these borrowers could also be excluded from student loan forgiveness, even if they are included in the Department of Education’s current cancellation plan.
As a result, FFEL program loan holders may want to contact their manager and consolidate them into the main direct loan program, which will receive the discount, Kantrowitz said. The main disadvantage is that your repayment schedule will be reset; so if you’re near the end, it might not make sense.
Borrowers considering refinancing their federal student loans into private loans at a lower interest rate may want to wait, Kantrowitz said.
For one thing, the interest rate on most federal student loans is 0% for another four months.
Plus, “they’ll feel stupid if they refinance only to have the feds announce loan forgiveness,” Kantrowitz said.