Update: The Biden administration has elected to erase $10,000 or $20,000 in student loan debt via executive order. The website to apply is already up, and the Republican lawsuits to stop it are already filed. If you have more than $10K or $20K, keep paying, although it will help a lot, it won’t erase all of your student debt.
Updated Update: A federal judge blocked Biden’s student loan forgiveness program. I don’t understand the logic of the decision, but it isn’t up to me. The government has appealed, but for now, the form to register for student loan forgiveness has been taken down, and no forgiveness payments or updates have been made.
During the 2020 Democratic Primary election, all the candidates threw their weight behind some form of student loan forgiveness. It isn’t hard to see why. Forgiving student loan debit is extremely popular, especially with those burdened by large student loan payments. Now that Biden has announced his partial student loan forgiveness program is it time to financially plan for student loan forgiveness? Let’s dive in and answer the question, should I pay off student loans or wait for forgiveness?
The government posted a registration form for student loan forgiveness that was surprisingly simple. Tens of thousands of people had filled it out before it was taken offline following a judge’s ruling in Texas.
Student Loan Covid Forgiveness
Let’s jump in here and cut some misinformation off at the pass.
First, there is no Covid student loan forgiveness.
What there is, and has been since the Trump administration, is a temporary payment deferral program that allows student loan borrowers to forgo making student loan payments without incurring any sort of penalty, late fees, or even additional interest. It makes sense to adjust your plan for financial independence around this program.
What Should I Do About My Student Loans in 2022?
I try to keep my distance from the shenanigans in Washington as much as possible. However, it seems that the Biden administration came up with the $10,000 and $20,000 and Congress is just going to go with it rather than jumping ahead and passing any sort of law to setup their student loan forgiveness rules.
$10,000 is better than nothing, but with the program blocked, your student loan balance is not going down, and nothing is forgiven.
So, where does that leave you?
First off, if you owe more than $10,000, or $20,000 if you received Pell grants, keep paying on your student loans. Any amount above your student loan forgiveness still has to be paid back. Make those payments on time and keep reducing your overall student loan balance and improving your credit score.
If you owe less than $10,000 or $200, I know what you are thinking. Making payments toward any amount that ends up being forgiven is a waste of money. You are right, but in the meantime, you need to protect your credit and credit score. Keep an eye out for creating a formal deferral if you need one. Just ignoring your student loan bills isn’t a good idea. Be sure you have a plan, and you monitor them just like you would any other personal loan or credit card.
What Should I NOT Do About My Student Loans in 2022?
Unlike cancelling student loan debt owed to the U.S. government, cancelling student loan debt held by private lenders involves paying them actual money. There is no way the President is going to be able to do that via executive order.
So, now is NOT the time to mess around with consolidating your student loans with a private student loan lender like SoFi. The only exception would be if you have several student loans totaling over $10,000, in which case you might want to consolidate SOME of your student loans assuming you can get a significantly lower interest rate. Remember, once your loans are with a private lender, the government isn’t your lender anymore. You don’t get any benefits. In fact, right now, most borrowers with private lenders are still paying interest.
For the time being, the smart move is to manage your finances as if there will be no student loan forgiveness.
— If you’re saving money for college instead of paying it off, check out our how to open a 529 plan article.