Out of the roughly 45 million people paying on student loan debt in the U.S., 26 million applied for student debt cancellation in late 2022 under President Joe Biden’s proposed federal student loan forgiveness program. But lawsuits challenging the legality of the forgiveness program have brought it to a halt, with the Supreme Court set to deliberate on it in late February.
In early January, updates regarding the forgiveness program were released and included the following:
- Reduced payments: Monthly payments would be reduced to 5% of the discretionary income, which is the income leftover after you’ve paid for basic necessities, including household bills, daily expenses, and taxes.
- Pay $0: Low-income borrowers would pay nothing.
- Zero interest: Interest accumulations while making regular payments would end.
- Forgiveness for long-time payers: Qualified borrowers would be eligible for complete student loan forgiveness after paying 20 years of monthly payments for undergraduate loans and 25 years for graduate school loans.
- Automatic enrollment in IDR plan: Borrowers who are 75 days behind on payments would be automatically enrolled in an income-driven repayment plan offering the lowest monthly payment.
According to Forbes, roughly 92% of all student debt comes from federal loans. In March 2020, student loan payments and interest were suspended to help alleviate the burden during the pandemic. But if the Supreme Court blocks the Biden Administration’s forgiveness program, payments will resume in June.
Get your finances in order so you’re prepared for student loan payments to pick back up:
- Budget: Create or update an existing budget to include what you would pay toward your student loan each month. If paying your loan doesn’t fit into your budget, now would be a good time to eliminate extraneous expenses.
- Save: Once you’ve gotten a handle on your budget and included your student loan expenses, start putting that money away each month. This way, you’ll already have the money set aside come June, as well as a safety net if you have any serious hardships one month.
- Debt Management Plan: Paying on credit card debt - in addition to your monthly expenses - can be a lot, so if paying toward student loans seems like too much, make an appointment with a certified credit counselor. Whether you just need budget-building help or you’re trying to find a way to pay less in interest, your counselor will help you find a solution.