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student loan forgiveness still possible

The originally announced student loan forgiveness was struck down officially by the Supreme Court last Thursday.

As a result, the Biden Administration is attempting another path toward student loan forgiveness.

I waited the weekend to see if more details would be available, but things are still foggy at the moment. Here is what is currently known:

  • Interest will start accruing on September 1st with payments due in October.
  • If you’re unable to make payments or full payments, President Biden recently announced a 12-month on-ramp period where interest will still accrue, but missed or partial payments will not negatively impact your credit score or be sent to collection agencies
  • A lesser talked about piece of the big announcement last year with student loan forgiveness was a new income-driven repayment plan. Last week they announced the official name “SAVE plan”.
    • Smaller required payments than previously available income-driven plans (undergraduate loans)
    • No unpaid interest will be added if you are unable to make the full payments!
      • For example, if your minimum payment is $50, but the normal interest amount accrued for that month was $100, the $50 shortfall does not get added back to your loan.
  • Qualified payments on Income-Driven Plans allow for forgiveness after 20 years for undergraduate student loans and 25 for graduate student loans
  • If you were already enrolled in an income-driven repayment plan, you will automatically be placed on the new SAVE plan.
  • If you are not signed up for income-driven repayment, now you can submit your request today.

As far as what the alternate path looks like, as I mentioned, not much is known

When to expect it to be finalized? 

    • On the studentaid.gov site, they said it may be months before official details are available.
    • The process they are following is one that allows them to establish a rule that requires multiple steps. I’m assuming that by doing this they are protecting it from being challenged in the same manner as the last time around.

Will everyone who qualified for the now-dead student loan forgiveness program qualify for this next attempt at student loan forgiveness?

    • Will everyone who qualified for the now-dead student loan forgiveness program qualify for this next attempt at student loan forgiveness?
    • They are refraining from putting these specific details out there and are just stating that they are attempting to provide forgiveness to as many “working and middle-class borrowers as possible”
      • Here are key things that may differ from the previously attempted student loan forgiveness:
        • Tax years they look at for eligibility
        • Income limits
        • Amount of forgiveness

Should You start paying your student loans?

  • You should start in October if you can afford to.

Should you pay them off faster than required? Maybe not.

  • The interest rate on your student loans is the biggest factor in my opinion. 
    • Some rates are still very low 3-5% range. Compare this to saving more in a savings account earning 4.15% and paying the minimum on your student loan repayment.
    • Another factor is whether or not you may qualify for the next attempt at student loan forgiveness. If student loan forgiveness does occur and you paid off your student loans, it is unknown if you’d be retroactively refunded a portion of the amount you paid off. 
  • If your income is on the lower side and you don’t anticipate it to grow in the future, you’re more likely to qualify for any potential forgiveness, as well as, you may have a portion of your student loan forgiven after 20 years of payments.

When we meet for your next strategy guide meeting, we can discuss you’re exact scenario in more depth and come up with a strategy that matches the rest of your financial picture.