Patiently waiting to find out if your student loans will be forgiven?
President Joe Biden is reportedly set to make a final decision on mass student loan forgiveness.
But you shouldn’t hold your breath for this, according to an expert.
“Broad student loan forgiveness would be unlikely, especially in the current format,” says Robert Farrington, a student loan expert and founder of The College Investor, referring to the Biden administration considering a $125,000 income limit. $ so that borrowers can qualify for student loan forgiveness. “I think one of the main reasons for the delay is that the administration is still considering the best approach to take.”
Farrington’s reasoning is simple: there are too few resources and time to realistically accomplish massive student loan forgiveness.
“Any approach that requires income caps will also require some type of application, which would then require resources for both the process and an outreach campaign to get borrowers who might qualify to apply,” he says. This would be difficult to implement in a timely manner given that many of Biden’s waivers and programs rely on his powers under the HEROES Act, which require a national state of emergency, according to Farrington.
“At some point the state of emergency for COVID-19 will end, and with that its powers to enact broad programs [like mass student loan forgiveness],” he says.
Will there be another extension of the student loan payment break?
Instead of massive student loan cancellation, Farrington thinks we’ll continue to see streamlined efforts by the administration to forgive as much as possible before the midterm elections in November — like the cancellation of 5, $8 billion for borrowers who attended the now-defunct Corinthian colleges and likely another extension of the student loan payment break.
The Biden administration again extended the pause on the federal student freeze in April until August 31, 2022, citing pandemic-related challenges faced by student borrowers as the reason. But US Education Secretary Miguel Cardona recently said the student loan payment suspension could be extended beyond the end of August.
“I know we have a date, and it may be extended,” Cardona said during a June 7 Senate subcommittee hearing. “Or it could be that it starts there. But what I will say is that our borrowers will have adequate notice.
Should you repay your student loans?
While there may be potentially significant developments for borrowers in the weeks or months ahead, don’t change the way you approach your student loan debt.
Depending on your financial situation, you may continue to take advantage of this break to prioritize other aspects of your finances. Many experts we’ve spoken to over the past couple of years recommend using that extra time to help divert money to building an emergency fund or paying off higher interest rate debt. high, such as credit cards or private student loans.
If you want to keep reducing your student loan debt, Farrington recommends taking a specific approach: Set money aside in a savings account and make a lump sum payment just before payments resume. In this case, you would make a large payment towards the end of August if the break was not extended again. In the event that there is a forgiveness, then you will have that money in your savings account for other uses, such as investing or making a down payment on a house.
Whether you’re paying off your loans now or prioritizing other aspects of your finances, now is the time to start planning for when payments resume. It is of the utmost importance to ensure that your personal information on your accounts is up to date – such as your address, telephone number and email address – so that you can stay informed of any new announcements regarding your loans. You’ll also want to review your repayment strategy and double-check repayment dates and grace periods for each loan. To take it a step further, start budgeting now for the resumption of payments. Consider any changes in your income and see if you need to cut spending in certain areas to make room for upcoming student loan repayments in your budget.
All we know at this time is that federal student loan repayments will resume at the end of August. Mass student loan forgiveness may be top of mind for many borrowers, but you shouldn’t base your strategy on the perceived likelihood of it happening.