Biden this month promised a decision on student loan forgiveness. Here are 5 things borrowers can do while they wait – CNBC | Vette Leader

President Joe Biden has promised to make his decision on student loan forgiveness “by the end of August.”

That means millions of Americans could learn the future of their debt within days or weeks.

While waiting for more news, here are five things borrowers can do to be prepared for a possible loan foreclosure announcement.

1. Determine if you could be included in the discharge

Loan forgiveness can exclude borrowers who exceed a certain amount, likely in part to quell critics who say the policy diverts taxpayers’ money to the wealthy.

Specifically, those who made more than $125,000 or $150,000 as single filers or $250,000 or $300,000 as couples who filed their taxes together in the previous year may be left out, according to the Washington Post report.

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Meanwhile, in an internal agency document recently obtained by Politico, the US Department of Education’s plan to cancel the debt would include student loans for college graduates; student loans for parents, known as Parents PLUS Loans; and Federal Family Education Loans (FFEL), which are federal loans held by private entities, in addition to major direct federal student loans. (However, the White House will likely have the final say on which loans qualify.)

“When it comes to private student loans, it seems highly unlikely that they will be included in the waiver plan,” said Elaine Rubin, senior contributor and communications specialist at Edvisors.

2. Avoid “any rash action”

According to higher education expert Mark Kantrowitz, student loan borrowers were more likely than ever to reduce or eliminate their balances.

Biden has vowed to call in some of the loans and there are reports the government is considering a plan to wipe out $10,000 per borrower. Also, 60% of American voters now say they support some form of debt relief.

Even so, Kantrowitz said, “nothing can be relied upon until the law is signed.”

“Borrowers should not rush into action pending loan forgiveness,” he added.

In other words, you shouldn’t be celebrating just yet and cutting student loans from your budget.

3. Assess the potential impact on your debt

Right now, the main bone of contention among lawmakers and proponents is how much of the debt to cancel: $10,000 or $50,000?

$10,000 in debt relief for everyone would cost the federal government $321 billion and completely settle the balance sheets for nearly 12 million people. The $50,000 forgiveness of all borrowers, on the other hand, will cost $904 billion and free 30 million people from debt.

Even under this more generous plan, not everyone would be entirely happy.

One-fifth of federal student borrowers owe more than $50,000, and about 7% of borrowers have six-figure balances.

4. Take advantage of the payment break

Most federal student loan borrowers will not have to pay their bills until September thanks to the billing pause in effect since March 2020 during the Covid pandemic era. The break could be extended again.

Because $10,000 in student loan forgiveness is the proposal most likely to materialize, Betsy Mayotte, president of the Institute of Student Loan Advisors, a nonprofit, said she sees nothing wrong with people who owe less than that amount, divert their usual payments to savings until we hear more about forgiveness.

Until the legislation comes into force, you can’t count on anything.

Markus Kantrowitz

university expert

Even if you owe more than $10,000, it may be wise to take advantage of the government’s student loan payment pause. Instead, you can use the extra cash to pay off high-interest credit card debt or build up your emergency reserves, for example.

An important note: If you’re enrolled in an income-based repayment plan or are seeking forgiveness of government loans, you definitely don’t want to keep paying your loans.

That’s because months during the government’s payment pause still count as qualifying payments for these programs, and since both lead to forgiveness after a certain time, any money you throw on your loans during that time only reduces the amount you end up receiving apologies.

5. Consider consolidation options

Millions of people who took out student loans under the FFEL program before 2010 were excluded from the government’s offer to suspend their payments interest-free. There are fears that these borrowers could also be barred from making student loans despite being included in the Department of Education’s current cancellation plan.

As a result, FFEL program loan holders may wish to contact their servicer and consolidate them into the main direct loan program that qualifies for forgiveness, Kantrowitz said. The main disadvantage of doing this is that your repayment schedule will be reset; So if you’re close to the end, it might not make sense.

Borrowers who are considering refinancing their state student loans into private loans at a lower interest rate may want to hold off, Kantrowitz said.

For one, the interest rate on most federal student loans is 0% for an additional four months.

What’s more, “they’re going to feel stupid refinancing just for the federal government to announce the loan forgiveness,” Kantrowitz said.

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