President Biden’s plan to cancel up to $20,000 in student loans will affect people in different ways, but for some, it will have no impact at all. Cody Godwin, Associated Press
The Biden administration’s student debt relief plan is mired in litigation. That means Americans shouldn’t expect relief anytime soon. They should be ready to start making repayments again on January 1st. See how.
Now that millions of Americans are unlikely to receive student loan forgiveness by the end of the year, they should prepare (and quickly) to start repaying again, experts say. A federal appeals court voted unanimously Monday to issue a nationwide injunction barring the Biden administration’s student loan relief program until the matter is resolved in court. The Biden administration could ask the Supreme Court to lift the order. Either way, resolution could take months and certainly won’t come until the end of the year when the student loan moratorium ends. That means everyone with student debt will likely have to start making repayments on Jan. 1 unless the administration can come up with a new plan that can avoid litigation, experts say. Even if the administration comes up with a new plan, it will likely be narrower than the one stuck in court, so “I’m telling people to wait to start paying again,” said Brian Marks, executive director of the Entrepreneurship Program and Innovation at the University of New Haven in Connecticut. Some debt relief: With student loan forgiveness stuck in court, here’s how the feds are still writing off debt Biden Plan Blocked: US judge in Texas blocks President Biden’s student debt relief plan. appealed
How many Americans with student debt does this affect?
A simple application for debt relief started around mid-October. About 26 million Americans had already applied for forgiveness and 16 million people had already been approved for debt relief when the Department of Education stopped accepting applications on Nov. 11, the day a federal judge in Texas declared the debt relief plan illegal in a separate lawsuit. The White House estimated over the summer that up to 43 million borrowers, including about 20 million borrowers who would have had their entire balance written off, would be eligible for relief.
What is the income limit for student loan debt forgiveness?
The administration’s plan, announced last summer, would have canceled $10,000 in federal student loans, including Parent Plus loans, for those earning less than $125,000 or for households with an income of less than $250,000. Recipients of Pell Grants, who typically demonstrate greater financial need, will receive an additional $10,000 in debt forgiveness.
What should people do to prepare to start repaying again?
There isn’t much time between now and the end of the student debt repayment pause on Dec. 31, but people need to “get their financial house in order,” Marks said. 401(k) limit increased: The IRS is raising the retirement savings cap for 2023, but few have made it. Here’s what you can do about it. Little fiscal easing: Some prices are falling, although inflation remains high. Here’s what’s cheaper. Here are some steps you should take before the end of the year:
Start cutting expenses and increasing savings, Marks said, acknowledging that it’s been a tough year with the highest inflation in a generation. The times “need prudence and creativity,” he said, recalling when he and his wife first got married and had little money, they would take long walks or spend their dates shopping instead of going to the movies — neither costing a lot of money. Find out what your payments will look like and whether you’ll be able to afford them. If not, and if you don’t qualify for forgiveness, it might make sense to refinance at a lower rate if possible before payments restart, said Randy Lupi, financial professional at Equitable Advisors. Note, however, that once the loans are refinanced with a private company, they will no longer be eligible for any federal forgiveness programs, he said. Check your eligibility for other government loan forgiveness programs. “For example, people in the nonprofit sector are likely to qualify for Public Service Loan Forgiveness, which has no cap on the amount of forgiveness, and they should take that time to make sure they’re properly enrolled,” Lupi said. . Consider paying off your loan before January 1st. Because the student loan repayment pause includes 0% interest, 100% of the payments made during the pause go toward your principal, said Eric Schuppenhauer, head of national banking and lending at Citizens Bank. If you lower your loan amount, you may be able to shorten the loan term and save money in the long run. Check your eligibility for income-based repayment plans. Federal student loans offer income-driven repayment plans that can lower your monthly payments. Check with your employer. A survey by the Employee Benefits Research Institute last year found that 17% of employers offer student loan debt assistance and another 31% plan to. For example, Aetna matches US employee student loan payments up to $2,000 per year for a lifetime maximum of up to $10,000 on eligible loans. PwC offers partners and senior associates up to $1,200 per year for student debt. and Google matches up to $2,500 a year.
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Medora Lee is a money, shopping and personal finance reporter at USA TODAY. She can be reached at [email protected] and subscribe to her free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
