Biden Announced $10,000 in Student Loan Forgiveness. 4 Money Moves to Make If You Qualify

A photo to accompany a story about student loan forgiveness Kent Nishimura / Getty Images
President Joe Biden announced Wednesday the cancellation of $10,000 in student debt for borrowers earning $125,000 or less per year and households earning $250,000 a year or less. The payment freeze on student loans will also be extended through Dec. 31.
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Life just got better for millions of student loan borrowers.

President Joe Biden announced Wednesday he will cancel $10,000 of student loan debt for borrowers who qualify and extend the federal student loan payment pause until the end of the year. 

To qualify for the $10,000 forgiveness, individual borrowers must earn less than $125,000 a year, or less than $250,000 a year for couples. Biden also said he would forgive up to $20,000 in debt to those who borrowed money under the Pell Grant program for low-income students. The repayment pause was extended for a “final time” until Dec. 31, 2022. 

“In keeping with my campaign promise, my administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023,” the president wrote in a tweet, saying he plans to share more details on his plan Wednesday afternoon.

The action will fulfill a Biden campaign promise from nearly two years ago. Many borrowers had grown anxious, discouraged, and impatient with the president’s inaction in recent months, and some had started to question if any student loan relief would come to fruition. Roughly 43 million Americans owe $1.6 trillion for federal student loans, according to recent federal data. 

The Biden administration “appears to be offering targeted relief to those who need it,” says Robert Farrington, founder of The College Investor, a site that provides information and advice on student loans. “However, I’m concerned about the execution.” The Education Department said borrowers will have until the end of the year to claim forgiveness

Details are still coming out on how Biden will enact widespread student debt cancellation and its impact to the U.S. economy. But $10,000 could make a meaningful difference in the lives of many Americans straddled with student loan debt, experts say. 

Here’s what you need to know now, and smart money moves to make if you qualify for student loan forgiveness

Money Moves to Make If You Qualify for Student Loan Forgiveness

First, experts recommend that you continue to take advantage of the pause on federal loans through the end of the year. Use this time to prioritize other important aspects of your finances, like building an emergency fund of savings, paying down high-interest debt, or investing in a traditional retirement plan. Those are areas where you can make your money go further right now. 

Looking forward, now that you may have more clarity around debt cancellation and the payment pause extension, you can better plan for the future and be even more aggressive toward reaching money goals. 

If you qualify for forgiveness, it’s important to update your contact information with your loan servicer, check your mail or email for up-to-date information about your loans, and start planning a budget that accounts for potentially lower monthly student loan payments at the start of next year. 

Know What You Owe

Create a master list of all your student loans, including your loan servicers, outstanding balances, minimum monthly payments, and interest rates. That will help you know who to contact for help, such as applying for forgiveness, requesting deferment, consolidating, or enrolling in an income-driven repayment plan.

Prioritize Saving

The last two and a half years have shown us that having an emergency fund at all times is important, which is why you should start building one as soon as possible if you haven’t already. Establish a plan and look for ways you can begin saving a part of your income each month for the future, especially if you’re not paying off your student loans at this time. 

Experts generally recommend saving anywhere between three to six months’ worth of expenses. Note that your monthly budget may have become more expensive lately, with inflation near a four-decade high. 

Also, look at what your goals are for the next few years. It could be saving for a down payment on a house, saving for your child’s college, or investing for retirement. Whatever it may be, you can start putting money away for it now in a high-yield savings account or a short-term CD while student loan payments are paused. 

Tackle Debt from High to Low Interest

Student loan forgiveness will likely decrease your monthly payments or get rid of them entirely, says Dan Casey, founder of Bridgeriver Advisors, an investment advisory firm.

Put any freed-up money towards other high-interest debt you hold, such as credit cards or personal loans. If you’re in a good spot with your finances, have a steady income, and want to chip away at your private student loans, target the ones with the highest interest rate first. Be sure to get ahead of any financial challenges by calling and requesting to refinance or modify your private loans to a lower rate. 

Start Investing for Your Future

If student debt has affected your ability to save for retirement, use the additional monthly income not spent on student loans to open or contribute to an individual retirement account (IRA), 401(k), or other retirement savings plan.