The toll of student debt in America is high. More than $1.7 trillion is owed by 45 million former students, according to the Federal Reserve. Even more striking, 45% of debtors aren’t sure they can make their payments when automatic forbearance ends at the end of January, according to a recent study from Nerdwallet.
President-elect Joe Biden ran on a platform of forgiving at least some of that student debt. In his Emergency Action Plan, Biden lends support to Sen. Elizabeth Warren’s strategy to forgive a minimum of $10,000 per person in federal student loan debt. But does that mean you should hang tight on your payments until Biden takes office? It’s a little more complicated than that.
Here’s what you need to know.
Make a plan and review it often
If you’re one of the 45 million student loan debtors, you need to figure out how you’re going to pay that money back, regardless of any potential forgiveness.
Robert Farrington, founder of The College Investor, says to keep things under control by making sure you’re checking in on your debt often. And he knows how stressful that can be.
“Pick the plan that you can afford right now,” Farrington told TMRW. “That’s the plan that will work for you, stick to those programs and reassess every year.”
Right now, federal loans are automatically in forbearance until Jan. 31, so you have some time to crunch the numbers and weigh your options. And if you’ve been eyeing those low interest rates for the past few months, Anna Helhoski, student loans expert at NerdWallet recommends taking a pause before refinancing.
“If you’re a federal student loan borrower, you should not refinance with a private company in case there is any forbearance,” Helhoski advised. Getting a private loan would likely make borrowers ineligible for forgiveness or forbearance, she said.
If you're struggling right now, there are ways to get help
If you’re dreading the due date on your loan payment each month, you don’t have to suffer through it. There are ways that you can get help outside of hoping for loan forgiveness.
For borrowers who are out of work now and likely will be when automatic forbearance ends on Feb. 1, Helhoski says you can request an unemployment deferment before payments resume. “Doing that now would put you at the front of the line to either help you make your payments or pause them longer,” she said.
You can also consider an income driven repayment plan, which can adjust your payments depending on what’s in your paycheck, or a apply for Public Service Loan Forgiveness. But be sure to read the fine print: Any loan that’s forgiven may be considered taxable income, and no one wants any surprises on April 15.
Take any forgiveness promises with a grain of salt
Loan forgiveness would help millions of borrowers, if it were to happen, but it’s not a magic wand. “If you forgive $10,000 in student loan debt, we’ll be in the same situation in three to five years that we are right now,” Farrington said, citing need for bigger educational reform. “It doesn’t totally fix the issues.”
Farrington advises that if you are willing to hedge your bets, then don’t make a lump sum payment right now. “If you’re on the fence about whether or not it’s going to happen, make your minimum payments and wait six months,” he said. “I would not pay extra, I would reassess when we learn if this will come to fruition or what that looks like.”
Helhoski’s advice? “Don’t plan on student loan forgiveness as part of your repayment plan, but welcome it if it comes,” she said. “Biden has expressed support of forgiveness through congressional action, he’s allegedly considering executive action, but it’s really unclear.”