Published on December 01, 2022
Student debt forgiveness updates and 3 recommended strategies
A couple of months ago we wrote about the student debt forgiveness program and its impact on borrowers. Since this program affects so many of our members, we wanted to provide an update.
What is the latest?
Just before Thanksgiving, The White House announced that the student loan payment pause was extended another six months through June 30, 2023. The White House added that borrowers should expect to start paying on their student loans again by mid-2023.
This announcement was made despite a backdrop of opposition. Lawsuits and appeals are currently with the Fifth Circuit Court of Appeals and the Eighth Circuit Court of Appeals challenging the legality of the program. The U.S. Supreme Court could decide to get involved as well.
As a result of the above legal action, courts have instructed the U.S. Department of Education to pause the program. Therefore, borrowers who did not previously fill out an application for student loan debt relief cannot do so now. The Department of Education has indicated it has a record of all completed applications and is seeking to overturn court orders to pause the program.
Simply put, the debt forgiveness program is in limbo until further court action. The Department of Education invites interested parties to subscribe for further agency updates.
How can borrowers best prepare for any changes?
Regardless of how student debt loan forgiveness is impacted by court decisions, borrowers with outstanding balances should prepare for the payment pause to end in the new year. A financial industry leader we spoke with, who also happens to hold student loan balances, advised members consider three strategies:
If you have more than $10,000 in debt, consider making the interest-free payments. You’ll reduce the balance on your loan principle, saving you money in the long run.
Set up a Target in your Community Choice e-Banking account and automatically deposit your student loan payment amount each month. This will allow you to get used to the idea of budgeting for this expense again. That way, when payments restart, you'll have several payments saved up to cushion the impact while already being accustomed to making regular payments.
Look at your total debt and confirm the interest rate for any loan. If you have high-interest credit cards or other payments to catch up on, use this opportunity to pay those higher rate loans off first before student loan payments are required.
Check back to this blog for future updates on the student loan forgiveness program. No matter what happens with student loan debt forgiveness, the best advice is to be aware of your finances and to have a plan. With this knowledge you will be prepared to act quickly as situations change with the goal of reducing both short and long-term debt.