Biden to exclude student loan forgiveness from the budget: how to do it
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President Joe Biden’s next annual budget proposal to the White House will not include any student debt forgiveness, says recent press reports.
For nearly 43 million federal borrowers, Friday’s news could be disappointing – especially given previous actions by the Biden administration which suggested that a major student loan cancellation policy could be imminent. In early April, Biden asked the US Department of Education to review whether his executive authority gave him the ability to enact a massive cancellation of student loans without the approval of Congress. This decision has given millions of Americans a glimmer of hope, but we are still waiting to see the results of this report.
As borrowers continue to be left in the dark, many wonder when and if their debt will ever be canceled. Now that student loan forgiveness is not included in Biden’s annual budget, should borrowers go ahead and pay off their student loans – taking advantage of the final months of the interest rate break? Or should they just wait a little longer in the hope of having their debt canceled?
As with most things related to personal finance, the answer depends on your individual situation. Below, Select describes three scenarios with input from Meagan Landress, consultant at Student loan planner and Certified Student Loan ProfessionalÂ®, on how you should proceed with your loan repayment plan.
1. I am pursuing PSLF
Being a federal student loan borrower is have access to protections and benefits that you would not otherwise receive through a private student lender.
One of these protection programs is Public Service Loan Forgiveness (PSLF), which offers loan cancellation for individuals employed full-time by a U.S. government organization (federal, state, local, or tribal) or a valid 501 (c) (3) nonprofit. Borrowers who work for an eligible employer must repay their loans under a income-based repayment plan (IDR) (it recalculates your monthly bill based on any change in your income), and they have to make 120 qualifying monthly payments.
If you are suing PSLF, Landress suggests paying as little as possible on your federal loans to maximize what you can get forgiven. Although federal loan payments and interest are on hold until September 2021, those $ 0 payments still count towards your eligible monthly PSLF payments as if you continued to pay off your loans during the hiatus. This applies as long as your loans are not in arrears and you continue to work full-time for an eligible employer while the payment is suspended, depending on the official federal student aid website.
âThere is still no benefit to paying your loans until the administrative forbearance is lifted if you are pursuing the PSLF, because those months still count towards that forgiveness schedule,â Landress says.
2. I can’t afford to pay for everything now
The federal student loan payment and interest freeze that is in effect until September 30, 2021 may be an opportune time to continue to repay your loans, if you can afford it.
If you fall into this category, you have enough money to make at least your minimum monthly student loan payment, but you can’t afford to pay off all of your student loans at once.
With interest suspended at 0%, your payments will be made directly from your principal so you can trim it faster than if you paid on an accumulated interest balance. Also, once the forbearance period ends and payments / interest resume, you will have a smaller balance which will then earn interest.
If that’s your plan, Landress adds a caveat: make sure there is nothing else in your financial plan that needs more immediate attention. “Prioritize paying off higher-interest debt and building emergency savings before committing money to the [paused] student loans, âshe said.
What is considered âhigher interest debtâ?
Look no further than your unpaid credit card balances. Since many card issuers charge double-digit interest rates, the monthly balance can add up quickly.
Consider using some of the funds you set aside to pay off your student loans in the future to pay off your credit cards today. Transferring your credit card debt to a balance transfer credit card can also give you more time to pay off your debt without accumulating additional interest.
the CitiÂ® Double Cash Card offers an introductory period of 0% APR for the first 18 months on balance transfers (afterwards, varying from 13.99% to 23.99%), plus the card has no annual fees and a simple program and 2% cash back flat rate: Cardholders earn 1% on all qualifying purchases and an additional 1% after payment of their credit card bill.
3. I plan to pay off my debt as soon as possible
Are you in a financial situation where you could afford to pay off your loans, but you haven’t ramped up payments because you’re waiting for Biden’s potential widespread forgiveness?
Landress suggests that you “block” by placing the funds intended for the repayment of your student debt in a savings account and leave them intact until closer to September 30, 2021, the date the forbearance ends. As the date approaches, you can then make your lump sum payment in order to take advantage of both the interest-free period while giving yourself more time for any last possibility of generalized forgiveness.
“If no pardon is in sight by September 30, 2021, eliminate it and you’re done!” Adds Landress.
The decision of whether or not to pay off your federal student loans depends largely on whether or not you are pursuing the PSLF, and if not, ask yourself how much you want to pay on your student loans.
For those who can afford to make monthly student loan payments, but not enough to get rid of debt entirely, consider taking advantage of the interest freeze to make principal payments only while you can.
Borrowers who have the funds to fully repay their student loans but haven’t yet done so because they don’t want to run out of forgiveness, give yourself a few more months. If, as the end of September 2021 approaches, no forgiveness has occurred, finally pay off your loans for good before they start collecting interest again.
Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.