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In the news: Student loans
Federal student loan repayment freeze extended
Last month, President Biden extended the federal student loan repayment freeze until August 31, 2022. This makes it the fourth extension since he came into office and the seventh overall since the start of the COVID-19 pandemic in March 2020.
The point of the student loan freeze is to help provide relief to millions of student loan borrowers during this time of financial crisis. Because of the freeze, borrowers no longer have to worry about repayment, interest accrual, or collections.
As of this year, the total national student loan debt reached approximately $1.746 trillion. To put that into context, over 43 million borrowers have federal student loan debt averaging out at just over $37,000 each.
Many student loan borrowers have to juggle other financial obligations, such as raising a family or paying their mortgage. In fact, roughly half of all federal student loan borrowers are between the ages of 30 and 44.
The repayment freeze has somewhat eased this financial burden, but this most recent extension couldn’t have come at a better time. Although there have been some economic improvements since the pandemic – the national unemployment rate dropped to 3.6%, for example – there’s still a ways to go.
While there have already been several extensions on the payment freeze, it seems we might be in for a change in the coming months. According to the Biden administration, there’s a chance of some real student loan debt forgiveness after August.
Of course, nothing’s set in stone yet, and millions of people are left wondering what to expect after summer. For now, though, thanks to the continued payment freeze, federal student loan borrowers have a little more time to figure out their financials.
Still, if you have student loans and don’t have a plan for how you’re going to start making payments, now’s the time to start thinking about it. That way, whatever happens in August, you’ll be as prepared as possible and won’t risk defaulting on your debts.
Student loan debt forgiveness: Where we are right now
But while you’re planning for repayments to (potentially) start back up, here are some recent developments in student loan debt forgiveness.
For starters, the U.S. Department of Education is looking for more ways to ease the overarching financial impact of the COVID-19 pandemic on student loan borrowers. A big part of this involves finding more ways to provide student loan forgiveness to a greater number of people.
This means two things. The first is loosening up the eligibility requirements for student loan forgiveness programs. The second is streamlining the process – that means less paperwork, for one.
So, how are they doing this?
In October 2021, the Department of Education revamped the Public Service Loan Forgiveness Program. As a result, over 100,000 more borrowers became eligible for $6.5 billion in total federal student loan relief. Not only that, but the Department has provided nearly $8 billion in student loan debt relief to another 400,000+ borrowers with a permanent disability.
The Department has also implemented a waiver that counts any prior loan payments towards the student loan forgiveness program. The Biden administration has also already wiped out around $4.6 billion in student loans for public service workers as part of the public service loan forgiveness program overhaul.
Tens of thousands more borrowers with consolidated student loans are also now eligible for $1.74 billion in forgiveness. Another 27,000 borrowers may qualify for $2.82 billion in forgiveness based on employment. This includes people who work in the public service industry – teachers, active service members, first responders, etc.
And the list goes on.
In all, the Department of Education has already provided more than $17 billion in targeted student loan relief to 700,000+ borrowers under the Biden administration.
The department also plans to use the current repayment freeze to reset the roughly 7 million student loan borrowers who are currently in default on payments. The hope here is that the extension will help more borrowers find financial security as the economy continues to improve. If all goes well, even if the extension ends after August, more borrowers will be able to start making payments without delinquency.
One other thing to note is that Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer have recently proposed canceling up to $50,000 per borrower. Biden’s counter-offer? To cancel up to $10,000 of student loan debt per borrower. But the idea of forgiving any amount of student loan debt is hotly debated, as opponents argue that it doesn’t address the underlying issues of skyrocketing tuition rates and the ramifications of accruing debt, and could be unfair to borrowers who repaid their student loans in full.
The jury’s still out on what will happen.
Need help budgeting? Try a free budgeting app
As we all wait to find out what’s going to happen next with the student loan repayment and forgiveness program, here’s one way to get you back on track financially: Create (and follow) a personal budget.
If you’ve never created a budget before, or if the one you have isn’t quite working out, a budgeting app like Mint can help you get started. With a budgeting app, you can organize your income, track your expenses, cut back on spending, and start planning for long-term financial stability.
The great thing about budgeting apps is that they’re convenient and, in many cases, completely free. Plus, you can sync them with your bank account, so you get up-to-date information on things like transactions, upcoming bills, and your spending habits.
Budgeting apps can also help categorize your transactions to determine where your money really goes every month. Some come with extra features, like credit score monitoring, goal-setting, and free financial education resources.
Mother’s Day survey: How much did you spend?
Historically, people spend much more money around the holidays than they realize. According to a recent Mother’s Day survey, 45.72% of people use cash to pay for things like flowers, chocolates, dining out, and gifts. Another 31.91% of people use credit cards instead. Unfortunately, with credit card debt already so high across the nation, every extra purchase adds to the financial struggle.
Luckily, there are ways to show your appreciation – and love – without having to fall into debt. One easy way to do this is to start budgeting your money several weeks or months in advance. For example, start setting aside a small sum each week – say, $10 or $20 – to cover any upcoming holidays. Doing this can ensure that you’re ready for the holiday and prevent any unnecessary financial stress. (Don’t forget dad. Father’s Day is just around the corner on June 19.)
The bottom line
So, what’s next?
Well, regarding the student loan payment extension plan, you at least have until the end of August before you have to worry about repayment. In the meantime, it’s a good idea to start setting aside some money each month in a high-yield savings account just in case payments start back up. That way, you’ll have the money when you need it – plus a little extra in interest.
If you’re not quite ready to make payments yet, there are some options. See if you qualify for an income-driven repayment plan, federal student loan forgiveness, or student loan refinancing. But be careful about refinancing federal student loans into private loans. You could lose some valuable protections.
As for student debt forgiveness, it doesn’t look like President Biden’s going to be canceling all federal loan debt. But with the public service loan forgiveness program overhaul and other recent changes, there’s still hope for either another extension or a wide-scale student loan cancellation. Keep an eye out for any policy changes in the coming months.
Coming next month: What you need to know about bankruptcy.