{"id":3081,"date":"2022-10-04T14:37:30","date_gmt":"2022-10-04T18:37:30","guid":{"rendered":"https:\/\/www.skypointfcu.com\/wph\/workarea\/?p=3081"},"modified":"2022-10-04T14:37:34","modified_gmt":"2022-10-04T18:37:34","slug":"what-student-loan-cancellation-could-mean-for-your-budget","status":"publish","type":"post","link":"https:\/\/www.skypointfcu.com\/wph\/workarea\/blog\/what-student-loan-cancellation-could-mean-for-your-budget\/","title":{"rendered":"What Student Loan Cancellation Could Mean for Your Budget"},"content":{"rendered":"\n

The Biden administration announced plans for federal student loan relief last month. The plans include the cancellation of up to $10,000 in debt<\/a> for borrowers who meet income requirements and up to $20,000 for Pell Grant recipients. Beyond cancellation, the proposal also extended the pause on loan repayment through the end of the year and introduced a new income-driven repayment plan aimed at lowering monthly payments.<\/p>\n\n\n\n

For now, these plans are just, well, plans. And plans can change. Many experts expect the proposal to face legal challenges, so don\u2019t make any big money moves just yet. Here\u2019s what you can do now to prepare for relief, and what it could mean for your budget.<\/p>\n\n\n\n

There\u2019s still uncertainty<\/strong><\/p>\n\n\n\n

If the proposal moves forward unchanged, it could still take time for your budget to feel the effects. Loan forgiveness should be automatic for roughly 8 million people because they\u2019ve already supplied income data, according to the Department of Education. The Biden administration aims to make an application available for everyone else by early October. Relief is estimated to come four to six weeks after completing the application.<\/p>\n\n\n\n

\u201cThere\u2019s still a lot of unanswered questions,\u201d says Kyle Liseno, head of the student loan department at the nonprofit agency American Consumer Credit Counseling. \u201cI\u2019ve been telling people, just kind of stay tuned to studentaid.gov, which is the Department of Education website.\u201d You can also sign up for application notifications on the Department of Education\u2019s subscription page<\/a>. The application deadline is Dec. 31, 2023. But borrowers are advised to apply before Nov. 15 of this year to get relief before the payment pause ends.<\/p>\n\n\n\n

Here\u2019s what could happen if relief withstands legal challenges<\/strong><\/p>\n\n\n\n

It could free up more money for expenses and goals<\/strong><\/p>\n\n\n\n

The newly announced relief plans could erase or reduce a substantial amount of your federal loan debt. (Private student loans are not covered.) The impact on your budget<\/a> could be massive, especially during a time of heightened inflation and interest rates.<\/p>\n\n\n\n

\u201c$10,000 could be a great amount for someone, and it could really help them in terms of just getting back on their feet and getting rid of financial debt,\u201d says Maggie Klokkenga, a certified financial planner in Morton, Illinois.<\/p>\n\n\n\n

If you don\u2019t qualify for forgiveness, you\u2019ll still benefit from the pause on loan payments, which has been extended through Dec. 31, 2022 \u2014 interest-free. If you keep making payments during the pause, your balance will drop. If you hold off, you can put some of the money you previously spent on payments toward more urgent expenses, such as rent or high-interest debt.<\/p>\n\n\n\n

But even if you\u2019re eligible, you won\u2019t be handed a $10,000 check. Klokkenga suggests looking at your previous student loan statements to remind yourself of the minimum payment amount. Then, you can allocate some or all of that amount (depending on how relief impacts your balance) toward saving for an emergency fund<\/a> and other financial goals, \u201cwhether it\u2019s vacation, short term, or whether it\u2019s retirement, long term,\u201d Klokkenga says. \u201cAnd then you can still have some fun with it, but it\u2019s not to say this is a windfall or that you just won the lottery.\u201d<\/p>\n\n\n\n

Liseno says he\u2019s already seen many people pursue financial goals while payments have been paused. \u201cAll this deferment has shown that when student loans are off the table, young people are buying homes now. They\u2019re buying cars. That money is going into the economy,\u201d he says.<\/p>\n\n\n\n

Think of what you would do with the extra cash if your $300 minimum monthly payment got slashed to $150. Or $0. Klokkenga says using an online tool, such as Utah State University Extension\u2019s PowerPay, can help you create a debt payment or spending plan based on your student loan savings.<\/p>\n\n\n\n

You might not feel a difference<\/strong><\/p>\n\n\n\n

Federal student loan payments have been on pause since March 2020. This latest extension should feel familiar.<\/p>\n\n\n\n

The relief plan \u201cis going to help a lot of Americans with \u2026 their future budgets,\u201d Liseno says. \u201cBecause most people haven\u2019t had to pay in almost three years.\u201d<\/p>\n\n\n\n

If you took advantage of the pause, you\u2019ve likely already moved money around elsewhere in your budget. Or, if you\u2019ve been responsibly socking the monthly payment amount away in savings, you\u2019ll be accustomed to parting with that money if you still have a balance to pay come January.<\/p>\n\n\n\n

Student loan relief plans are still up in the air. It may be tough to predict what will happen with your finances until there\u2019s a clear resolution. In the meantime, stay on top of news and do your best to prepare for different outcomes.<\/p>\n\n\n\n

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