Patiently waiting to hear if your student loans will be forgiven?
President Joe Biden is reportedly nearing a final decision on mass student loan forgiveness, with multiple news outlets reporting he could make an announcement as soon as July or August on whether he will fulfill a campaign promise to cancel at least $10,000 in student debt per borrower.
But you shouldn’t hold your breath for it, according to one expert.
“Broad-based student loan forgiveness would be unlikely, especially in the current format,” says Robert Farrington, a student loan expert and founder of The College Investor, referring to the Biden administration mulling over an income limit of $125,000 in order for borrowers to qualify for student loan forgiveness. “I think a big reason for the delay is that the administration is still considering what is the best approach to take.”
Farrington’s reasoning is simple: there’s too little resources and time to realistically accomplish mass student loan forgiveness.
“Any approach that requires income caps will also require some type of application, which would then require resources to both process and an outreach campaign to get borrowers who could qualify to apply,” he says. That would be difficult to implement in a timely fashion given many of Biden’s waivers and programs are relying on his powers under the HEROES Act, which require a national state of emergency, according to Farrington.
“At some point, the state of emergency for COVID-19 will end, and with that so does his powers to enact broad programs [like mass student loan forgiveness],” he says.
Will There Be Another Extension Of the Student Loan Payment Pause?
Instead of mass student loan forgiveness, Farrington thinks we will continue to see streamlined efforts by the administration to forgive as much as possible before the midterm elections in November — such as the $5.8 billion cancellation for borrowers who attended the now-defunct Corinthian Colleges and likely another extension of the student loan payment pause.
The Biden administration extended the pause on federal student freeze again in April until Aug. 31, 2022, citing ongoing pandemic-related challenges faced by student loan borrowers as the reason. But U.S. Secretary of Education Miguel Cardona recently said the student loan payment pause could be extended beyond the end of August.
“I know we have a date, and it could be that it’s extended,” Cardona said during a Senate subcommittee hearing on June 7. “Or it could be that it starts there. But what I will say is that our borrowers will have ample notice.”
Should You Be Paying Off Your Student Loans?
Though there could be some potentially significant developments for borrowers over the coming weeks or months, don’t change how you’re approaching your student loan debt.
Depending on your financial situation, you could continue taking advantage of this pause to prioritize other aspects of your finances. Many experts we’ve spoken to over the last two years recommend using this extra time to help divert some money toward building an emergency fund or paying down more pressing high-interest debt, such as credit cards or private student loans.
If you want to continue chipping away at your student loan debt, Farrington recommends taking a specific approach: set money aside in a savings account and make a lump-sum payment right before payments start up again. In this case, you would make a big payment near the end of August if the pause isn’t extended again. On the off chance there is forgiveness, then you’ll have that cash in your savings account for other uses, like investing or a down payment on a house.
Whether you’re paying off your loans now or prioritizing other aspects of your finances, now is a good time to start planning for when payments ultimately do resume. It’s of the utmost important to make sure your personal information on your accounts are updated — such as your address, phone number, and email address — so you can stay on top of any new announcements about your loans. You’ll also want to review your repayment strategy and double check the pay-off dates and grace periods for each loan. To get further ahead, start putting together a budget now for when payments resume. Consider any changes to your income and see if you need to cut spending in certain areas to make room for upcoming student loan payments in your budget.
All we know right now is that federal student loan payments will resume at the end of August. Mass student loan forgiveness may be at the forefront of many borrowers’ minds, but you shouldn’t set your strategy based on the perceived likelihood that it’s coming.