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Patiently waiting to find out if your student loans will be forgiven?
President Joe Biden is reportedly nearing a final decision on massive student loan forgiveness, with multiple media outlets reporting he could make an announcement in July or August on whether he will follow through on a campaign promise to pay off at least $10,000. in student debt per borrower.
But you shouldn’t hold your breath for it, according to one expert.
“Broad-based student loan forgiveness would be unlikely, especially in the current format,” says Robert Farrington, student loan expert and founder of The College Investor, referring to the Biden administration considering a $125,000 income limit for that borrowers qualify for student loan forgiveness. “I think one of the main reasons for the delay is that the administration is still considering what is the best approach to take.”
Farrington’s reasoning is simple: There are too few resources and time to realistically achieve massive student loan forgiveness.
“Any approach that requires income limits 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. That would be difficult to implement in a timely manner given that many of Biden’s waivers and programs depend on his powers under the HEROES Act, which require a national state of emergency, according to Farrington.
“At some point the state of emergency due to COVID-19 will end, and with it its powers to enact extensive programs [like mass student loan forgiveness],” he says.
Will there be another extension of the student loan payment pause?
Instead of massive student loan forgiveness, Farrington believes we will continue to see streamlined efforts by the administration to forgive as much as possible before the midterm elections in November, such as writing off $5.8 billion for borrowers. who attended the now defunct Corinthian Colleges and probably another extension of the student loan repayment pause.
The Biden administration extended the pause on the federal student freeze again in April through August 31, 2022, citing ongoing pandemic-related challenges facing student loan borrowers as the reason. But US Education Secretary Miguel Cardona recently said the student loan payment pause could extend beyond the end of August.
“I know we have a date, and it could be extended,” Cardona said during a Senate subcommittee hearing on June 7. “Or it could be that it starts there. But what I will say is that our borrowers will have ample notice.”
Should you be paying off your student loans?
Although there could be some potentially significant developments for borrowers in the coming weeks or months, don’t change the way you approach your student loan debt.
Depending on your financial situation, you could continue to take advantage of this break to prioritize other aspects of your finances. Many experts we’ve talked to over the past two years recommend using this extra time to help divert some money toward building an emergency fund or paying off more pressing high-interest debt, like credit cards or private student loans.
If you want to continue reducing your student loan debt, Farrington recommends taking a targeted approach: Set aside money in a savings account and make a balloon payment just before payments start up again. In this case, you would make a large payment near the end of August if the pause is not extended again. In the event of a discharge, you will have that cash in your savings account for other uses, such as investing or a down payment on a house.
Whether you’re paying off your loans now or prioritizing other aspects of your finances, now is a good time to start planning when payments will finally resume. It is very important to make sure that your personal information in your accounts is up to date, such as your address, phone number and email address, so that you can be aware of any new announcements about your loans. You’ll also want to review your repayment strategy and double-check payment dates and grace periods for each loan. To go further, start budgeting now for when payments resume. Consider any changes in your income and see if you need to cut spending in certain areas to make room for upcoming student loan payments in your budget.
All we know at this point is that federal student loan payments will resume at the end of August. Massive student loan forgiveness may be on the minds of many borrowers, but you shouldn’t set your strategy based on the perceived probability that it will happen.