President Biden has expressed support for student loan relief policies – everything from extending the current federal forbearance period to increasing the value of Pell Grants. One of his most popular proposals is the push to cancel $ 10,000 in debt for all borrowers with federally owned student loans.
Borrowers with federal student loans may see this as a good time to stop making payments in order to maximize their forgiveness potential. But there are a few things to consider before taking this route.
Biden offers two avenues of forgiveness
Among Biden’s proposals are two major student loan forgiveness plans – and while the amount is the same, not all borrowers would qualify for both types of forgiveness. Its proposals currently include:
- Cancellation of student loan in progress: Biden wants to write off $ 10,000 in undergraduate student debt for each year of national or community service the borrower performs, up to five years. And if you have up to five years of prior service, you will also qualify.
- Single forgiveness: Biden has offered to forgive every federal loan borrower $ 10,000 in student loans as part of the pandemic relief measures.
There are several ways to cancel a student loan. On the one hand, Biden could sign an executive order to write off student loan debt without congressional approval. However, he said he did not plan to do so. He is more likely to introduce a new stimulus package or wait for Congress to pass a resolution canceling student loan debt.
Canceling student loans is not a popular topic among many congressional Republicans. It has been removed from previous stimulus packages and is not even included in Biden’s most recent proposal.
However, on February 4, Democrats in the House and Senate introduced student loan debt cancellation resolutions. House Majority Leader Chuck Schumer and Senator Elizabeth Warren reintroduced a bill to eliminate up to $ 50,000 in federal student loan debt – introduced for the first time last year. It is not clear whether either resolution has a path to passage.
So, should you still be making student loan payments while waiting for forgiveness?
One of the first actions of President Biden in office was to extend the break on federal student loan payments and interest rates until September 30. This allows borrowers who are struggling to make ends meet to avoid making the decision between falling behind on loans and keeping the lights on.
Since your student loans may qualify for some form of waiver, it may be tempting to use this forbearance period to stop making all payments. However, there are pros and cons to this approach.
Here’s what to consider:
- Forgiveness is not guaranteed. While canceling student debt is a priority for many lawmakers, no formal policy has yet been written. It is possible that Biden’s proposal to write off $ 10,000 for all federal borrowers will be accepted, but it is just as likely that the parameters of the remittance will be changed. If you assume that your debt will be canceled and you don’t have a plan to keep paying it, you could end up in debt for longer.
- Making payments reduces your total balance. Even if the $ 10,000 rebate is accepted, any student loan balances exceeding this amount will still need to be paid. Taking advantage of the zero interest period now is a great way to lower your total balance and reduce the amount you would have to pay later.
- It’s about weighing the risk. Making the decision to stop payments in anticipation of a student loan forgiveness is a personal risk. If you haven’t racked up emergency savings or are having trouble paying other bills, it’s worth putting your payments on hold now, regardless of discount policies. If you have a small balance – say $ 2,000 – you can also choose to put your student loan payments in a savings account and wait for the repayment to resume or for your balance to be canceled.
What are the best strategies for paying off student loans?
Since student loan cancellation is just a mention and not set in stone, you are still responsible for making payments when they are due. And above all, if you only have private student loans, you probably won’t be eligible for a student loan forgiveness.
Here are some of the best ways to manage your student loans as the administrative forbearance continues:
- Pay off the private loans now. If you have a mix of private student loans and federal loans (or just private loans), you need to keep making those payments. Private lenders do not operate under the same rules as federal student loans, which means there is no blanket forbearance period. Unless your lender gives you a break, you’ll need to keep making payments.
- Refinance your loans. If you only have private student loans, you may qualify for a lower interest rate and potentially lower monthly payments if you refinance. Student loan interest rates are at historically low levels right now, making it a great time to refinance. But don’t refinance your federal loans – not only will you have to immediately start making payments with interest again, but you will also lose your eligibility for any future loan cancellations.
- Save potential payments. Since you do not need to make any federal student loan repayments at this time, this money could be used for immediate needslike paying for your home, utilities, and car. You may also want to consider placing these payments in a high yield savings account. That way, when your payments resume, you can pay off the amount you saved as a lump sum.
If you are struggling to pay off your private student loans now, you will need to contact your lender and see what options you have for your situation and individual needs. You may be eligible for help with difficulties; eligibility varies by lender, but many have coronavirus-specific options in place.