Borrowers holding federal student loan debt have been granted a huge benefit. Since the beginning of the pandemic in March 2020, student loan payments and interest have been suspended. The suspension will now continue through the end of 2022. The big news is the cancellation of federal student loan debt, which will benefit most of the 43 million people currently holding student loans—in essence, creating a one-time windfall.
The plan wipes out up to $10,000 in federal-loan debt for individual borrowers with annual incomes under $125,000 or couples who earn less than $250,000. Loan forgiveness may increase to $20,000 for borrowers that received Pell Grants, a form of federal financial aid awarded to students from low-income households.
At this point, no action is required by you. The education department is working on the details and timing for the plan to go into effect. Beware, fraudsters are exceptional at finding ways to get unsuspecting and uninformed people to share personal information, opening the door to being scammed.
Here’s what you can do. Check with your loan servicer and studentaid.gov to verify that your information is up to date. Watch for changes specific to your loan through your service provider.
What should you do after your student loan has been forgiven – federally tax-free? It’s a windfall; make it count! Create a plan to apply the money you would have used for student debt to improve your financial future. Here are several suggestions you can consider.
- Apply the amount you were paying to other high-interest debt.
- Build your emergency savings – typically 3 to 6 months of net income.
- Increase contributions to your company-sponsored retirement plan or IRA.
- Create an investment account that is not tied to retirement and can be used for future goals and purchases, such as the down payment on a home.
If you know someone that could benefit from this information, please forward it to them. If you have additional questions, please reach out to our team of advisors, and we can share our years of experience and discuss the best options for you.
