What to expect in 2023 – Forbes Advisor

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Amid rapidly rising interest rates, multiple federal student loan payment pause extensions, and a controversial student loan forgiveness effort, 2022 has been a tumultuous year in the lending space. students.

Many of these issues will likely continue into next year. Here’s what to expect from your student loans in 2023 and how to manage your debt when the future is uncertain.

Will student loans be canceled in 2023?

President Joe Biden announced an unprecedented student loan forgiveness program in August: Federal borrowers who earn less than $125,000 a year (or $250,000 if filing jointly with taxes) would be eligible for loan forgiveness. of $10,000. Borrowers who also received Pell grants in school could get $20,000 of debt erased.

The announcement drew mixed reactions. Many borrowers were delighted to have the opportunity to write off their debt, while others argued that it was too small an amount to make much of a difference. Yet others argued that any loan forgiveness was unfair to those who had not gone to college or had already paid off their school debt, and a waste of taxpayers’ money.

As expected, the pardon decree was challenged in court. Several cases are ongoing and the Department of Education has closed pardon applications. However, more than 26 million borrowers have already submitted requests for forgiveness and 16 million requests have been approved and sent to loan servicers.

While no pardons can be processed until these legal issues are resolved, at least two cases are currently on appeal. The Biden administration has asked the Supreme Court to reinstate its pardon efforts, though it’s unclear how the court will respond or how long a final ruling might take. The court could approve or reject the government’s request, or agree to hear arguments on an expedited basis before issuing a more detailed decision.

For its part, the Biden administration appears confident that loan forgiveness will eventually continue; the administration has started notifying borrowers that their requests for forgiveness have been accepted. “Your application is complete and approved, and we will discharge your approved debt if and when we prevail in court,” said a recent email from Education Secretary Miguel Cardona to some borrowers.

While the issue is resolved, borrowers can subscribe to Department of Education updates or check the Federal Student Aid website for the most up-to-date information.

Expect student loan payments to resume

In March 2020, former President Donald Trump instituted a pause on nearly all federal student loan repayments. This pause has been extended several times by Trump and Biden. Biden announced last August that a “final” extension would be granted until the end of this year. Now, federal student loan repayments are expected to resume in January 2023.

However, legal challenges to the cancellation of student loans have complicated this timeline. Reported rumors have circulated that the payment pause will be extended again, and officials are said to be in preliminary talks to discuss this possibility.

But even if an extension is announced and payments don’t resume in January, borrowers should expect to resume payments in 2023. Consider the steps you can take now to ensure a smooth transition to resuming payments.

Interest rates on student loans will likely continue to rise

Interest rates on federal, private, and refinanced student loans have all risen over the past year, thanks to record inflation and general economic turmoil. The Federal Reserve has influenced student loan interest rate hikes by raising the federal funds rate six times so far this year. In doing so, interest rates for most types of loans have steadily increased.

Rates are expected to continue to rise in 2023. The federal funds rate is expected to be between 3.9% and 4.9% in 2023, according to the Federal Reserve; it is currently between 3.75% and 4%. However, if inflation reacts positively to the Fed’s actions, interest rates may not continue to rise much.

Federal student loan rates are updated annually in July. After an initial drop due to Covid-19, rates have steadily increased over the past two years. Undergraduate student loans currently carry a rate of 4.99%, down from 3.73% in the 2021-22 school year.

Private student loan rates are updated much more frequently and have also increased over the past year. As of Nov. 14, 10-year fixed-rate student loan rates averaged 7.76%, down from 6.40% a year ago, according to Credible. Five-year variable-rate student loan rates averaged 9.06%, down from 3.53% a year ago.

Rising rates on any type of student loan affect borrowers taking out new loans as well as those who already have variable rate loans.

Should I refinance my student loans in 2023?

For borrowers whose federal student loan repayments have been suspended for nearly three years, there hasn’t been much incentive to refinance their debt. However, this could change with the resumption of payments expected in 2023.

Refinancing federal student loans has always been a complex decision, even before the pandemic disrupted the student loan market. You may save money on interest, but you also lose all of your federal benefits, including income-contingent refund and rebate opportunities.

However, refinancing private student loans is simpler. Because most don’t come with special perks like federal loans do, there’s less to lose if you refinance.

No matter what type of student loan you have, it’s important to shop around and compare different lenders. Most borrowers refinance with a new loan that offers better terms, such as a lower interest rate or a smaller monthly payment. Since 2023 is expected to be a generally high interest market, it may be difficult to find a lender offering a lower rate in the near future.

However, refinancing can still be beneficial if you want to adjust your student loan repayment period or lower your monthly payment.

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