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The last week of August 2022 is going to be a big week for millions of students. Everyone is looking at Biden for the announcement about student loan forgiveness and loan pause extension policy.
The outstanding balance of student loan is more than $1.7 trillion for almost 40 million American student. Even before Covid pandemic, 10 million were defaulters.
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1. What Is Student Loan Repayment Extension
Student loan has been paused by Trump government on 31st March 2020 at the onset of Covid pandemic. The loan is paused for the government held federal students’ loans. The loan repayment has been suspended for almost two years now. The suspense notice was given in short terms extensions.
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2. How Many Times Loan Repayment Extended
During Trump governance, the first pause extension was announced on 8th August 2020 during till 31st December 2020 and the second pause extension was announced on 4th December 2020 extending it till 31st January 2021.
During Biden governance, the first pause extension was announced on 20th January 2021 extending it up to 30th September 2021 and second pause extension was announced on 6th August 2021 extending it to 31st January 2022.
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Biden government further announced the extension on 22nd December 2021 extending it to 1st May 2022 and sixth pause was announced on 6th April 2022 extending to 31st August 2022.
This is the 29th month of pause. Biden’s repayment pause is up to 31st August, and everyone is looking at Biden government for pause extension.
Finally, Biden government has announced the finale extension on 24th August 2022. The extension is up to 31st December 2022 and students need to plan for loan repayment from January 2023.
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3. Student Loan Forgiveness
Another big announcement for the students is student loan forgiveness which would be a historic event. The student loan forgiveness could include Direct Loans, Parent Plus Loan, Grad Plus Loans, FFELP Loans and Perkins Loans.
The relief is only for the individual who earns less than $ 125,000 per year or families with total net income of less than $ 250,000.
Apart from this, White House also plans to extend moratorium on monthly payment and the interest. All the students who fall under any of these criteria can expect student loan forgiveness. The student loan forgiveness would bring relief to lot many students.
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4. What Does the Announcement Mean
It is expected that Biden would announce to forgive $10,000 debt for millions of students while $ 20,000 of debt for lower- and middle-income group. If the student has Pell Grant, then the amount forgiven is $20,000. The students who have taken federal loan can only be eligible for the forgiveness.
Any student who has taken loan through private bank or a lender in which government is not involved are bound to start the repayment after the pause is over.
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5. Next Steps
The announcement is done on Wednesday i.e., 24th August 2022. This has given the student breathing time to the students concerned about ongoing Covid19 Pandemic.
Biden is facing pressure from opposition as he seems to have cancelled $400 billion of student loan which is far too expensive for the government.
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6. When Can Federal Student Loans Be Forgiven?
It is expected that students might get the forgiveness within 45 days from the Biden’s potential announcement. This timeless has not legal challenge. Total 43 million students have taken federal loans. Out of 43 million, 15 million owe less than $10,000 while 9 million owe between $10,000 and $20,000.
If minority of outstanding debt is eliminated, then Biden is set to forgive most or all balance of students debtors. The majority of student debtors are those who have been at highest risk of default.
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7. Can You File Bankruptcy on Student Loans
With student loan, a bankruptcy can be filed. This can be done with the showcase of undue hardship on the student and his or her family. Once the petition is put, the courts shall use various instruments to gauge if the borrower has shown correct hardship.
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8. Do Student Loans Affect Credit Score
Surely the student loan will affect your credit score. The loan amount and repayment history both would go in arriving your credit score. Doing regular payments can have a positive credit score for you.
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9. Do Federal Student Loans Affect Taxes
On a broad basis, $ 2,500 of interest can be deducted from your tax return. This will also be affected by income limitation and other restrictions.
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10. How To Pay Off Student Loans
Sooner or later, the student loan repayment is going to start for many. Here are some ways by which you can do the repayment.
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1) Refinance Student Loan
You can refinance the student loan without making extra payment. Multiple student loan can be clubbed and paid with lowest interest rate.
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2) Fortnightly Payment
This is to trick yourself by paying the extra on loan. Pay half payments every fifteen days instead of paying in single shot at the month end.
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3) Autopayments
If you don’t want refinancing, then choose autopayments. This would reduce the interest on loan faster.
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4) Extra Payments
Whenever you have money make the extra payment at any time of the month.
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5) Pay off Interest
The interest will accrue when you are in school or grace period. This will only increase interest on larger amount. Try and make lumpsum interest payment before grace period or before postponing ends.
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6) Use the Extra Money
If you have got bonuses or any other source of money, then breakdown the money for debt, savings and fun.
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7) Standard Repayment Plan
With federal loan, you are directly on 10-year repayment plan. If you cannot make additional payment, then stick to standard repayment plan.
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11. Controversies
Senate Minority Leader Mitch McConnell (R-Ky.) called the help a “slap in the face.” He said, in part, in a statement, “Washington Democrats have found yet another way to make inflation even worse, reward far-left activists, and achieve nothing for millions of working American families who can barely tread water.
President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt.
This policy is astonishingly unfair. The median American with student loans already has a significantly higher income than the median American overall. Experts who studied similar past proposals found that the overwhelming benefit of student loan socialism flows to higher-earning Americans.
Democrats specifically wrote this policy to make sure that people earning six figures would benefit.”
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