With talk of Biden’s new student loan forgiveness plans, you’re probably wondering whether you should count on your student loans being forgiven. Student loans are currently at $1.58 trillion-plus in the U.S., causing stress and financial hardship for many. Student loan forgiveness sounds nice, but will it really happen?
Talk of Biden’s new policies
Biden’s presidential campaigns promised student loan forgiveness. After being elected, he repeated his commitment to cancel some portion of student loan debt. However, in a surprising turn of events, he left student loan forgiveness out of his 2022 budget.
It’s unclear whether the president even has the power to pass a bill forgiving student loans. We know that Biden was a fan of last year’s bill, which offered $10,000 per borrower in student loan forgiveness. This bill was part of the coronavirus relief bill, but ended up not being supported by the Senate. Even though student loan forgiveness is not a part of the current budget, there are some Democratic leaders who are pushing Biden to write an executive order that would go around Congress and cancel as much as $50,000 per borrower.
Current student loan forgiveness programs
The truth is that there are already multiple government student loan forgiveness programs, and none of them are actually that helpful when it comes to forgiving student loans.
- The Teacher Loan Forgiveness Program offers forgiveness of up to $17,500 for teachers, but the requirements are quite strict. They include being employed as a full-time teacher for five complete and consecutive academic years at a low-income school, among other conditions.
- Another program called the Public Service Loan Forgiveness (PSLF) program offers to forgive your remaining balance after you have made 120 monthly payments. This forgiveness offer is also quite difficult to attain, and requires that you be employed full-time by a U.S. federal, state, local, or tribal government or non-profit organization. You must also prove that you’ve made qualifying payments for 10 years and be on an income-driven repayment plan, as well as other requirements.
The fact is that not many people actually get their student loans forgiven. In fact, only 2.41% of processed PSLF applications have been approved since the program began in 2007.
Should you hold out for the possibility of student loan forgiveness?
All this to say, you should probably not wait for the chance that your student loans might possibly be forgiven. If the past is any indicator, student loan forgiveness is very difficult to come by. And it’s unclear whether the new student loan policies discussed by Biden will ever pass. Even if they do, the qualifications will likely be difficult to attain.
If you’re holding out hope that the government will waive your student loan debt, at least take some precautionary steps. If you’re not paying on your loans right now, or are paying a minimum, we suggest stockpiling some cash on the side. That way, you’ll be able to make a large payment in case things don’t work out the way you envision.
In short, take control of your own finances instead of waiting on the government to fix your financial issues. You’ll likely find much more success and peace of mind in having a plan to get out of debt, instead of hoping for the off chance that the government will step in and save the day.
How to pay off your student loans
So how should you go about paying off your student loans? We suggest using Dave Ramsey’s debt snowball method. This involves paying off all of your debts from smallest to largest. Here’s how it works:
- List out your debts from smallest to largest.
- Make minimum payments on all but the smallest debt.
- Hustle to throw as much money as you can at your smallest debt. This might include picking up a side job or cutting costs somewhere.
- When the smallest debt is paid off, roll over the amount you were paying to the next debt.
- Continue until all of your debts are paid!
To read more about the debt snowball method and why it works, click here.
Financial freedom is possible!
Student loan forgiveness sounds really nice, but it’s not something you should bank on. Your financial future is up to you. With hard work and a little momentum, you can crush your student loan debt and be on your way to financial freedom.
At Milestone Wealth Management, we want to help you make decisions that will free you up to be confident about your financial future. The sooner you have a plan in place for the years ahead, the more you can build wealth and feel assured that you’re heading in the right direction. We’re here for you. Call us today.
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.