It’s all over the news: President Biden’s Student Loan Forgiveness Plan.
What is Biden’s Student Loan Forgiveness Plan?
Forgiveness
Biden’s plan is to forgive up to $10,000 in federal student loans and $20,000 for people who received Federal Pell Loans.
This forgiveness only applies to people who earn less than $125,000 a year or couples who earn less than $250,000.
If you have private student loans or make more than $125,000 a year, sorry, this forgiveness does not apply to you.
Same if you have already paid off your student loans. Good job, but this won’t give you back any money.
Lowering The Maximum Income Based Repayment Plan
Currently, income-based repayment plans are based on 10% of a borrower’s income.
Under the new plan, income-based payment plans will be lowered to 5% of the borrower’s income.
This is great for bringing down the required monthly payments of those who have a hard time paying, but it will also allow it to take even longer to pay off your loans.
Many people have complained that they have paid thousands of dollars on their student loans for years but their balance has actually increased.
By requiring lower monthly payments, the principal balance and annual interest will just continue to build.
This is a double-edged sword that many people do not understand.
Final Extension of the Student Loan Payment Freeze
When Covid happened, the federal government put a freeze on federal student loan payments.
Interest did not accrue. And anyone who was behind on payments before the pandemic will be put in good standing.
This freeze has been extended many times but Biden is saying it will be extended one last time until December 31, 2022.
When January 2023 rolls around, borrowers will have to make sure to start paying again.
How Many People Will Be Affected by Student Loan Forgiveness?
According to PBS.org
“About 43 million Americans have federal student debt, and a third of those owe less than $10,000. Half owe less than $20,000. The total amount of federal student debt is more than $1.6 trillion. Nearly one third of all American students take out loans to pay for college, with an average balance of $37,667, according to federal data.”
That means if this forgiveness goes through, it will completely wipe out many people’s student loan debt!
No matter how you feel about the forgiveness plan, this will drastically change a lot of lives.
How To Apply For Forgiveness If You Qualify
Since this information is so new, the actual forgiveness application has not yet been released.
If you qualify for student loan forgiveness, sign up for the US Department of Education Subscription so they can send you the application as soon as it’s available. Sign Up Here.
Their site says it will be released before the December 31st freeze ends.
What To Do If The Student Loan Forgiveness Won’t Wipe Out All Your Loans
Take Advantage Of No Interest And Pay Down Your Loans
Until December 31st, 2022, federal student loans are not charging interest. Take advantage of this time to pay down your principal balance.
Whatever your normal payment is, with interest, continue to pay that 100% towards the principle. Pay even more if you can.
It will help you get your loan balance down as fast as possible while taking advantage of 0% interest rates.
Start Planning To Begin Paying In January
If you are one of the thousands of borrowers who have taken advantage of the payment freeze these last few years due to an inability to pay, you will need to be ready to begin payments again in January.
Now is the time to look at your budget and figure out where loan repayment dollars will come from.
- Have you found a new job?
- Do you need to start a side hustle or part-time work?
- How can you rearrange your bills and expenses for this new payment?
Now is the time to start planning so that when January comes, you will be ready.
Be Ready To Negotiate
While looking for new ways to make room for loan repayments, begin negotiations.
Look for ways to decrease your household bills:
- Cancel or change your cable plan. Hulu, Netflix, and Disney+ are more than enough TV options for us and all together we pay less than $20 a month for them all!
- Move to a discount cell phone plan (We switched to Tello Mobile a few months ago. Now we get 2Gs a month for only $14 per line. Considering we are usually at home or someplace with wifi, this is more than enough for us. Or they have unlimited for $29/mo)
- Compare internet providers in your area and get them to compete for your business
- Shop around for insurance providers. If you’ve had the same provider for many years, you may not have their lowest rates. Give them a call and see if there are any discounts available or shop around for new providers with the same or better coverage.
- Negotiate with your landlord to see if you can avoid a rent increase this year for good payment history or providing extra maintenance. Or look at other housing options (House Hacking)
If you have private student loans:
- Make sure you have the best rate
- Look at refinancing private loans
- Shop around with multiple providers and pit them against each other.
- One person said they used the chat feature for multiple banks to get rate quotes. They then screenshot the quote and brought it to other banks via chat so they could beat it. Once the banks couldn’t go any lower, they refinanced with the lowest option. (Just make sure to watch out for any fees and compare those too.)
- Reach out to your current lenders and work with them.
- If your payment is too high, let them know what you can afford. They might work with you.
Do NOT refinance your federal loans. If you do that, you give up any option of forgiveness they may provide in the future.
Wrap-Up
I hope this article was helpful. There is so much going on in the news right now and changes are being made all the time.
If you have federal student loans, make sure to sign up for the US Department of Education Subscription so that you can submit your loan forgiveness application ASAP.
Good luck out there. And kick debt’s butt. (How To Pay Off Debt)