Student debt relief isn't expected soon. What you should do to prepare

The Biden administration’s student debt forgiveness plan is mired in litigation.
That means Americans shouldn’t expect relief anytime soon.
They should be ready to start repayments again on January 1. Here’s how.

With millions of Americans unlikely to get student loan forgiveness by the end of the year, they should get ready (and fast) to start paying back again, experts say.

A federal appeals court voted unanimously on Monday to issue a nationwide injunction blocking the Biden administration’s student loan debt relief program until the issue is resolved in court. The Biden administration could ask the Supreme Court to overturn the injunction. Either way, a solution could take months and certainly won’t come at the end of the year, when the student loan amortization period ends.

That means anyone with student debt should likely start paying off on January 1, unless the administration can come up with a new plan that can avoid lawsuits, experts say.

Even if the administration comes up with a new plan, it will likely be more limited than the one that’s been tied up in the courts. Entrepreneurship and Innovation Program at the University of New Haven in Connecticut.

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How many Americans with student debt does this affect?

In mid-October, a simple debt cancellation application was launched. About 26 million Americans had already applied for debt relief and 16 million people were already approved for debt relief when the Department of Education stopped taking applications on Nov. 11, the day after a Texas federal judge ruled the debt relief plan illegal in a separate lawsuit .

The White House estimated during the summer that up to 43 million borrowers, including about 20 million borrowers who would have written off their entire remaining balance, would qualify for an exemption.

What is the income limit for remission of student debt?

The government’s plan, announced last summer, would have canceled $10,000 in federal student loans, including Parent Plus loans, for those making less than $125,000 or households with incomes less than $250,000. Pell Grant recipients, who typically show greater financial need, would receive an additional $10,000 in debt forgiven.

What should people do to prepare to start paying off again?

There’s not much time between now and when the break on student debt amortization ends on Dec. 31, but people need to “get their financial house in order,” Marks said.

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Here are some steps to take before the end of the year:

Start lowering costs and increasing savings, said Marks, acknowledging that it has been a difficult year with the highest inflation in a generation. The times “call for prudence and creativity,” he said, recalling when he and his wife got married for the first time and had little money, took long walks, or spent their date running errands instead of going to a movie — neither cost much money.
Know what your payments will look like and if you can afford them. If not, and if you don’t qualify for a forgiveness, it may make sense to refinance, if possible, at a lower interest rate before payments begin again, said Randy Lupi, finance professional at Equitable Advisors. However, keep in mind that once loans are refinanced with a private company, they are no longer eligible for federal forgiveness programs, he said.
Check your eligibility for other government loan forgiveness programs. “Individuals in the nonprofit sector, for example, are likely to qualify for government loan forgiveness, which has no limit on the amount of the forgiveness and should take this time to ensure they are properly enrolled,” Lupi said.
Consider paying off your loan before January 1. Because the student loan repayment break includes a 0% interest rate, 100% of the payments made during the break go to your principal, says Eric Schuppenhauer, chief of national banking and lending at Citizens Bank. If you lower your loan amount, you may be able to shorten the length of the loan and save money in the long run.
Check your eligibility for income-related repayment plans. Federal student loans offer means-tested repayment plans that can reduce your monthly payments.
Check this with your employer. A survey from the Employee Benefit Research Institute last year found that 17% of employers offer student loan assistance and another 31% plan to do so. For example, Aetna matches U.S. student loan payments up to $2,000 per year for a lifetime maximum of up to $10,000 on qualifying loans; PwC provides employees and senior employees with up to $1,200 a year in student debt; and Google matches up to $2,500 a year.

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Student debt relief isn’t expected soon. What you should do to prepare

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