Student Loan Forgiveness Update - January 2023
What borrowers need to know when it comes to the status of student loan forgiveness and planning for the possibility of payments resuming.
At this moment, Federal Student Loan payments are suspended, no interest is accruing, and collections on defaulted loans are paused. Though, as borrowers know, the current status quo will change at some point in 2023 and two immediate questions are plaguing borrowers:
Will a portion or all of your loan be forgiven?
When will you need to begin repaying your loans?
In addition to the questions above, these are a few things borrowers should be aware of as things unfold.
Resources: Where you can find the most current information as things change related to forgiveness and potential resuming of loan payments.
Planning: How borrowers should make plans related to their student loans, even while things are up in the air.
Investment Considerations: For future borrowers—both students and parents—there are realities to consider before borrowing in the future for higher education.
Immediate Questions
Will your loans be forgiven?
This, unfortunately is the big unknown. Currently the student loan debt relief program is in litigation—which is why there is no clarity surrounding the outcome. My advice, plan for the worst, hope for the best. For now, your financial plan should assume they will not be forgiven and payments will resume this year (discussed below).
When will payments resume?
Payments are set to resume either 60 days following the conclusion of litigation or at the latest, 60 days after June 30, 2023, if litigation is not resolved by then. So the latest one could expect to begin making payments is August 30, 2023, though, it could be earlier if litigation is resolved. Borrowers will be notified at least 21 days before their payments resume.
Resources
For the most current details and updates on Student Loan Forgiveness:
What should you be doing now if you are borrower?
I previously outlined what I recommend borrowers do in the meantime while we are in loan forgiveness limbo in: Student Loan Forgiveness Still Unclear
Generally, plan as if the loans will not be forgiven and that payments will resume imminently. If you really want to be prepared, begin setting aside the amount you would be required to pay into savings starting this month. If the loans are forgiven—great, you can use these monies for something else. If not, you can use them to pay down a large chunk when loans resume. Most importantly, it will force you to adjust your cashflow to accommodate the loan payment if and when it resumes.
Remember, even if the litigation results in the U.S. Department of Education being permitted to move forward with forgiveness, then the details of how much is forgiven, what types of loans qualify, and who qualifies will need to be revisited in detail to make a plan based on those parameters. Assume, even if forgiveness happens, you may still be required to make some financial outlays related to your loans.
College Is an Investment-Make Sure You Evaluate It As Such
Is your College Degree Worth It?, a short post I made in early 2022, I provided a tool that students and families can use to evaluate if the college degree they are considering acquiring is “worth it.”
In the past, college meant a chance to improve your earning potential. By fine tuning your craft or becoming an expert in a high-demand field, college attendees could anticipate making enough money upon graduation to repay its costs within a reasonable time. Unfortunately, it is becoming more common that graduating college may not only fail to increase your earning potential, but it will saddle you with lifetime debt that can overwhelm your ability to achieve other financial goals.
College is an investment. It is both a financial investment and an investment in yourself. And just like any other part of your portfolio—the risks (in this case its cost) should be evaluated in relation to its reward.
My advice: College is more than just an education in a specific field;
it is also an experience that may enrich your life. However, that enrichment becomes less meaningful if the cost of attending financially devastates you or your family’s long-term future. Research not only the way you plan to finance your education, but also the utility of your choice of industry and school before making potentially a poor investment.