It’s official: U.S. President Joe Biden left student loan forgiveness out of the $6 trillion budget proposal he unveiled last week.
Meanwhile, payments are set to come due again for all federal student loans at the end of September. Experts say now is the time to stop holding your breath for student loan relief and instead focus on getting your finances in order.
“I didn’t see student loan forgiveness in the cards for Americans, and I don’t see the forbearance period getting extended. The economy is rebounding, things are getting back to normal, and everything is opening back up again,” says Robert Farrington, founder and CEO of The College Investor, a site providing advice on student loan debt.
If you have federal student loans, you have a few more months to decide what to do with any extra cash leftover from not making payments. “You should not give the government any extra money that’s not required of you, especially right now in lieu of potential loan forgiveness talk,” Farrington says.
This is an opportunity to get other priorities in order, says Farnoosh Torabi, a financial journalist and contributing editor at NextAdvisor. “If you have tens of thousands or more in federal student loan debt and other financial holes to fill—like paying off higher-interest credit card debt, beefing up savings, or contributing to your retirement plan—the smart money, I say, is to focus on those areas first,” Torabi wrote in a recent NextAdvisor column.
While student loan payments are still on hold, here are a few things you can do to improve your financial situation.
Make a Budget
First off, get organized and lay all your finances out on the table. Tax season is over; the summer is usually a great time to take a few minutes and get organized with your finances. Get clear on what you owe and what you own, and start putting together a budget. If you’re not sure how to proceed, we have tips on how to make a budget.
“Then you can start making some decisions on where to prioritize any extra you might have,” says Farrington.
Pay Down High-Interest Debt
Now is a great time to prioritize paying off other types of debt you might have, especially high-interest debt.
“I would start at the top of the list with private student loans that aren’t paused, and then I would probably go to credit cards and personal loans, any kind of unsecured debt like that, and start trying to eliminate that,” Farrington says. “Then see where else you can start making an impact, maybe a car loan or start building an emergency fund.”
You’ll want to put together a payoff plan to get your debt paid off as quickly and efficiently as possible. Once you’ve gone through your budget, consider two of the most popular payoff strategies: the debt snowball or debt avalanche.
The debt snowball method involves making minimum payments on all debts except the account with the lowest balance. If you pursue the debt avalanche method, you’ll focus first on the account with the highest APR, or annual percentage rate. The debt avalanche method will save you the most money because it gets rid of higher-interest debt first.
Build Your Emergency Fund
The COVID-19 pandemic has 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.
“What I recommend now for people who are able to save money is to start with an emergency savings fund if they don’t already have one, given the unpredictability of the last year or so,” says Jessica Ferastoaru, a student loan counselor with Take Charge America, a national nonprofit credit and student loan counseling agency. “I think it’s a smart move to start an emergency fund or continue to grow it in preparation of potential job loss or reduction in income.”
In terms of how much you should have in your emergency fund, the standard recommendation is three to six months’ of expenses. But Farrington says the amount you save in your emergency fund is ultimately a personal choice. “My philosophy is that anything is better than nothing,” Farrington says. “I think $1,000 is a great starting point.”
Ferastoaru recommends prioritizing saving over paying down debt right now. “Paying down debt is always a smart financial decision, but it’s so unusual to have student loans at 0% interest for such an extended period of time,” she says.
Save for Retirement
If you have an emergency fund, your debt is stabilized, and you’re following a budget plan, consider turning your attention to saving for retirement.
Financial experts agree the best way to build wealth and plan for retirement is through investing. You’ll need to find a way to contribute a portion of your paycheck regularly each month, and the easiest place to start is a retirement account, such as a 401(k) through an employer, or an individual retirement account (IRA).
Assuming you can meet your basic needs, use any extra cash you have to keep steady—or possibly increase—your contributions.
Start Saving For Major Life Events
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 CD while student loan payments are paused.