Biden has promised a student loan forgiveness decision this month. Here are 5 things borrowers can do while they wait

Personal finance

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President Joe Biden has promised to make his decision on student loan forgiveness “by the end of August.”

That means tens of millions of Americans could learn the future of their debt within days or weeks.

Here are 5 things borrowers can do while you wait for more news, to be prepared for a possible loan cancellation announcement.

1. Determine if you might be included in the relief

Loan forgiveness may exclude borrowers who make over a certain amount, likely in part to quell critics who say the policy would direct taxpayer resources to the well-off.

Specifically, those who earned more than $125,000 or $150,000 as individual filers in the previous year, or $250,000 or $300,000 as couples who filed their taxes jointly, may be left out, according to reporting by The Washington Post.

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Meanwhile, in a recent internal agency document Politico obtained, the U.S. Department of Education’s plan to forgive the debt would include graduate school 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 the main Direct Loan federal student loans. (The White House will likely have the final say, though, on which loans qualify.)

“When it comes to private student loans, it seems highly unlikely that they would be included in the forgiveness plan,” said Elaine Rubin, senior contributor and communications specialist at Edvisors.

2. Avoid ‘any precipitous action’

The odds of student loan borrowers getting their balances reduced or eliminated have never been greater, according to higher education expert Mark Kantrowitz.

President Biden has vowed to cancel some of the loans and there are reports that the administration is considering a plan of wiping out $10,000 per borrower. In addition, 60% of American voters now say they’re in support of debt forgiveness in one form or another.

Even so, Kantrowitz said, “until legislation is signed into law, you can’t count on anything.”

“Borrowers should not take any precipitous action in anticipation of loan forgiveness,” he added.

In other words, you’ll want to hold off on celebrating just yet, and crossing student loans off your budget.

3. Assess the potential impact on your debt

At the moment, the main point of contention among lawmakers and advocates is over how much of the debt should be scrapped: $10,000 or $50,000?

Canceling $10,000 in student debt for all would cost the federal government $321 billion, and clear the balances entirely for close to 12 million people. Forgiving $50,000 for all borrowers, on the other hand, will cost $904 billion, and leave 30 million people student debt-free.

Even under that more generous plan, not everyone would be entirely happy.

One-fifth of federal student loan borrowers owe more than $50,000, and around 7% of borrowers have balances over six figures.

4. Take advantage of the payment pause

Most federal student loan borrowers don’t have to pay their bills until at least September, thanks the pandemic-era pause on the bills that’s been in effect since March 2020. The break could be extended yet again.

Since $10,000 in student loan forgiveness is the proposal most likely to turn into reality, Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit, said she sees nothing wrong with people who owe under that amount redirecting their usual payments to savings until we hear more about forgiveness.

Until legislation is signed into law, you can’t count on anything.
Mark Kantrowitz
higher education expert

Even if you owe more than $10,000, it can still be wise to take advantage of the government’s pause on student loan payments. You can use extra cash instead to wipe out high-interest credit card debt, for example, or to build up your emergency savings.

An important note: If you’re enrolled in an income-driven repayment plan or pursuing public service loan forgiveness, you definitely don’t want to continue paying your loans.

That’s because months during the government’s payment pause still count as qualifying payments for those programs, and since they both result in forgiveness after a certain amount of time, any cash you throw at your loans during this period just reduces the amount you’ll eventually get excused.

5. Weigh consolidation options

Millions of people who took out student loans before 2010 under the FFEL program have been excluded from the government’s offer to pause their payments without interest accruing. There’s some concern that these borrowers could also be left out of student loan forgiveness, even though they’re included in the Education Department’s current cancellation plan.

As a result, holders of FFEL program loans may want to contact their servicer and consolidate them into the main Direct Loan program, which will qualify for the forgiveness, Kantrowitz said. The main downside of doing so is that your repayment timeline will be reset; so, if you’re near the end, it may not make sense.

Borrowers thinking about refinancing their federal student loans into private loans for a lower interest rate may want to hold off, Kantrowitz said.

For one, the interest rate on most federal student loans is 0% for another four months.

What’s more, “they will feel foolish if they refinance only to have the federal government announce loan forgiveness,” Kantrowitz said.

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