President Biden's plan to spend up to 20.Cancelling thousands of dollars in student loans will impact people in different ways, but for some it will have no impact at all.
Cody Godwin, Associated Press
- The Biden administration's debt relief plan is stuck in litigation.
- This means that Americans should not expect any relief in the foreseeable future.
- You should be prepared to pay on 1. January to begin repayments again. Here's how.
Now that millions of Americans are unlikely to receive student loan forgiveness by year's end, they should prepare (and quickly) to start repaying again, experts say.
A federal appeals court voted unanimously Monday to issue a nationwide injunction blocking the Biden administration's student loan debt relief program until the issue is resolved in court. The Biden administration could ask the Supreme Court to lift the injunction. Either way, a solution could take months and certainly won't come until the end of the year, when student loan repayment hiatus expires.
That means anyone with student debt is likely to default on 1. January must begin repayment unless administration can develop new plan that can avoid lawsuits, experts say.
Even if the administration comes up with a new plan, it will likely be tighter than the one stuck in court, which is why "I tell people to expect to start paying again," said Brian Marks, executive director of the Entrepreneurship and Innovation Program at the University of New Haven in Connecticut.
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How many Americans with student debt are impacted?
A simple debt forgiveness application was filed in mid-October. Approximately 26 million Americans had already applied for relief and 16 million people had already received debt relief approval when the Department of Education on 11. November stopped accepting applications, a day after a federal judge in Texas ruled the debt relief plan illegal in a separate lawsuit.
The White House estimated over the summer that as many as 43 million borrowers, including about 20 million borrowers whose entire remaining balance would have been canceled, would have been eligible for relief.
What is the income limit for student loan debt forgiveness?
The government's plan, announced last summer, would have 10.000 in federal student loans, including Parent Plus loans, eliminated for those making less than 125.000 US dollars, or households with an income of less than 250.000 US dollars. Pell Grant recipients, who typically have higher financial need, would get an additional 10 percent debt forgiveness.000 USD received.
What should people do to prepare to start repaying again?
Between now and the end of the break for student debt repayment on 31. December doesn't leave much time, but people need to "get their finances in order," Marks said.
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Here are some steps to take before the end of the year:
- Start cutting expenses and increasing savings, Marks said, acknowledging that it has been a tough year with the highest inflation in a generation. Times "call for prudence and creativity," he said, recalling the time when he and his wife got married and had little money, they took long walks or spent their date night grocery shopping instead of going to the movies – neither of which cost much money.
- Know what your payments will be and whether you can afford them. If not, and if you don't qualify for forgiveness, it may make sense to refinance at a lower interest rate if possible before resuming payments, said Randy Lupi, financial expert at Equitable Advisors. Note, however, that once loans are refinanced with a private company, they are no longer eligible for federal forgiveness programs, he said.
- Check your eligibility for other federal loan forgiveness programs. "For example, people in the nonprofit sector likely qualify for public service loan forgiveness, which has no cap on the amount of forgiveness, and should take that time to make sure they are properly registered," Lupi said.
- Consider making your loan before 1. January to be repaid. Because the student loan repayment break includes a 0% interest rate, 100% of payments made during the break go to your principal, said Eric Schuppenhauer, head of national banking and lending at Citizens Bank. If you cut your loan amount, you may be able to shorten the term of the loan and save money in the long run.
- Check your eligibility for income-driven repayment plans. Federal student loans offer income-driven repayment plans that can reduce your monthly payments.
- Check with your employer. A survey last year by the Employee Benefit Research Institute found that 17% of employers offer student loan debt assistance and another 31% plan to do so. For example, Aetna offsets U.S. employee student loan payments up to 2.000 USD per year for a lifetime maximum of up to 10.000 off for qualified loans; PwC offers associates and senior associates up to 1.200 USD per year for student debt; and Google fits up to 2.500 $ per year combined.
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Medora Lee is a money, markets and personal finance reporter for USA TODAY. Reach her at [email protected] and subscribe to our free Daily Money newsletter every Monday through Friday morning for personalized financial tips and business news.