President Joe Biden made some big promises about college costs and student debt on the campaign trail. And despite other lawmakers calling on him to make good on his word, borrowers are still seeking forgiveness.
The third pandemic stimulus package left out student loan debt cancelations. But it did include a tax law change that would make anything forgiven by 2025 tax-free. Read: no longer counted as taxable income (aka easier on your wallet). That applies whether your debt clears after 20 to 25 years of payments based on current income-driven repayment plan rules or future legislation. Or through the newly updated Public Service Loan Forgiveness program that offers debt relief to qualifying public-sector workers (think: teachers, military service members, first responders, and gov employees).
Reminder: federal student loan debt totals $1.7 trillion. Erasing it all, or just part of it, would help lessen that burden for 43.2 million Americans. Even if that doesn't include you, here’s what forgiveness could mean.
You win. Here are your next steps:
Get ready for more space in your budget. Make a plan for what you'll do with the extra money. Some ideas: paying down other debts, investing or saving more. (Psst...science says treating yourself a little can help you save more faster.)
Keep an eye on your credit score. Lenders like to see that you can manage different types of debt. So if your student debt is your only installment loan, wiping it all away could lower your score. Still worth it. But if you do lose a few points, here are a few pointers for getting them back.
Sorry, forgiveness only applies to federal student loans. But you still have options to make debt repayment more manageable.
Look into refinancing to see if it might get you a lower interest rate on your loans and shrink your monthly bill.
Get creative to speed up repayment. Pro tip: pay half the bill every other week. That adds up to 26 half payments (or 13 full payments) a year.
Donate your time to nonprofits like AmeriCorps, Shared Harvest Fund or the National Health Service Corps. And they might help repay your loan.
Forgiveness could still mean big things for the whole country.
The economy could get a boost. Because mass cancelation of student debt = more money flowing through the economy. Up to an average $108 billion a year more, by one estimate.
Higher education costs could continue to rise. If students take out loans expecting debt forgiveness, colleges would have no reason to bring costs down.
Student loan forgiveness may have seemed like a far-out concept a few years ago. But the new White House residents want to make it a reality. While the gov sorts out the details, make sure your wallet is ready for whatever comes next – whether you have federal, private or no student loans.
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Skimm'd by: Ivana Pino, Stacy Rapacon, and Elyse Steinhaus
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