DebtHammer Newsletter #12: The Tools You Need to Become Debt-Free

Student Loans: Student Loan Forgiveness and Repayment Pause

Approximately 42.8 million borrowers have federal student loans with an average balance of just under $38,000 each. A few months back, the Biden Administration proposed a new plan that would help reduce student loan debt by up to $20,000. This would be a significant help to many borrowers, even if it wouldn’t fully alleviate the financial burden of these loans.

Since the application period for President Joe Biden’s student loan forgiveness program opened, around 26 million borrowers have already applied. But as 2023 rapidly approaches, no student debt has been canceled and many borrowers are still waiting anxiously for news about student loan forgiveness.

READ MORE: More than 60% of student-loan borrowers think the loans are a scam

Why the Student Loan Forgiveness Plan is on Hold

As of now, Biden’s plan for student loan forgiveness has been put on hold for at least another few months — or perhaps indefinitely. The application for forgiveness is also currently blocked on the Student Aid website, so nobody new can apply even as current applicants wait for news.

There’s been a lot of back and forth on the topic of student loan forgiveness in America. As many people advocate for it, others continue to rally against the idea.

So, what’s going on?

For starters, many opponents of Biden’s plan are currently arguing against its legality. Nebraska’s Attorney General, Douglas Peterson, one of the more outspoken individuals against the plan, considers it to be unlawful.

Certain states are against passing the student loan forgiveness plan. These states claim it violates the Administrative Procedure Act and the separation of powers. These states, including Kansas, Nebraska, Arkansas, Iowa, South Carolina, and Missouri, also argue that the plan could hurt their tax revenues.

Some opponents to the plan have even challenged that it goes beyond Biden’s power as president.

Yet another argument is that Biden is using the 2003 HEROES (Higher Education Relief Opportunities for Students) Act to help push his plan through and extend the payment freeze. During President Donald Trump’s term in office, Trump used the HEROES Act to justify the student loan repayment pause due to the national emergency that was COVID-19.

Some of Biden’s advocates are still citing the Heroes Act as a defense of student loan forgiveness as well. However, many opponents are challenging whether the pandemic is still considered a national emergency. Additionally, the wording of the HEROES Act makes it unclear if student loan forgiveness is technically covered under the Act.

Even if the student loan forgiveness plan ends up being considered legal, it may not be constitutional. In February 2023, the U.S. Supreme Court will hear oral arguments about the plan. If Biden’s plan gets through — and there’s no guarantee it will — there could still be a long road ahead for student loan borrowers.

Student Loan Payment Pause Extended

The student loan payment pause has been extended with interest-free forbearance for three years already. As legal issues continue to hold up the student loan forgiveness plan, Biden has once again extended the pause — this time until June 2023.

This is good news for many federal student loan borrowers who are on an income-driven repayment plan or qualify for the Public Service Loan Forgiveness program. These paused payments could count as credit toward long-term student loan forgiveness, even without Biden’s plan.

If no debt-relief programs have been created by June 30, 2023, payments on student loans will resume after 60 days.

In Other News: Holiday Spending

With 2023 just around the corner, the holidays are in full swing. As people wait to hear about student loan forgiveness and what’s next on that front, there’s still the matter of holiday spending.

The winter holidays are a historically expensive time, made no less so due to the rising inflation — up 7.7% compared to last year around this time. Yet, despite the financial stress, people continue to spend large amounts of money on the holidays.

The National Retail Federation predicts that holiday retail sales for the months of November and December will increase by 6% to 8% over last year. Based on last month’s survey about holiday spending, this doesn’t seem too far off.

Out of 1,100 people surveyed, around 46.49% of people are anxious about finances this time of year. Around a third of Americans using credit cards to fund their holiday purchases fully expect to carry a balance into next year. Quite a few people are also using alternative forms of financing, such as “Buy Now Pay Later” plans, cash advance apps, personal loans, and payday loans. (Read more about the financial impact of BNPL plans.)

Along with this, just over half of those surveyed said that inflation influences their holiday shopping. This doesn’t mean everyone’s cutting back, though. In fact, some people expect to spend more money as a result of inflation.

If you’re stressing about money this holiday season, take a moment to talk to a friend or family member about it. Reconsider your spending and, if possible, cut back — even a little could help. Remember, it’s okay to put your mental and financial health first, especially if the alternative is a stressed-out family dynamic or unmanageable debt.

And if you’ve got a handle on finances this holiday season but are still dealing with student debt, see if you can take advantage of the payment pause. Set aside some extra cash for if (and when) payments resume next summer.

Need Debt Relief? There are Options

According to a recent CNBC report, 63% of Americans live paycheck to paycheck — regardless of income. And almost half are skipping meals as they grapple with rising food prices. This is largely due to inflation outpacing wage growth, though the holidays may not be helping with that. For many people, this has all led to greater financial stress, less cash leftover for emergencies, and more debt.

There is good news, though. Many state and federal resources are available to help those experiencing financial hardship, such as unemployment, low wages, or even homelessness.

Some programs that can help include:

  • Debt relief programs
  • Debt settlement agencies
  • Debt consolidation loans
  • State-specific hardship programs (ex. weatherization assistance, affordable housing assistance, childcare or healthcare assistance, etc.)

If you need debt relief or other financial help, check out these articles for state-specific resources:

Stay tuned for more state debt relief articles soon or check out the DebtHammer blog for more information.

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