Student debt relief isn’t expected soon. What you should do to prepare

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  • The Biden administration’s student loan cancellation plan is embroiled in litigation.
  • This means Americans shouldn’t expect relief anytime soon.
  • They should be ready to start repayment on January 1. Here’s how.

Now that it’s unlikely millions of Americans will receive student loan forgiveness by the end of the year, experts say they should prepare to start paying back (and quickly) again.

A federal appeals court on Monday voted unanimously to issue a nationwide injunction blocking the Biden administration’s student loan debt relief program until the question is resolved in court. The Biden administration may ask the Supreme Court to lift the injunction. Either way, a resolution could take months and certainly won’t come by the end of the year, when the student loan repayment pause expires.

That means everyone with student loans will probably have to start making repayments on Jan. 1, unless the administration comes up with a new plan that avoids court battles, experts say.

Even if the administration comes up with a new plan, it will probably be narrower than the ones stuck in the courts, which is why “I’m telling people to start paying again,” Brian Marks said. Entrepreneurship and Innovation Program at the University of New Haven in Connecticut.

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How many Americans with student loans will this affect?

The simple loan waiver application was launched in mid-October. About 26 million Americans had already applied for forgiveness and 16 million had already been approved for debt relief when the Education Department stopped taking applications on Nov. 11, the day after a federal judge in Texas declared the loan forgiveness program illegal in a separate lawsuit.

If the White House had written off an estimated 43 million borrowers over the summer, including roughly 20 million of their outstanding balances, they would be eligible for relief.

What is the income limit for student loan debt forgiveness?

The administration’s plan, announced last summer, would have canceled $10,000 in federal student loans, including Parent Plus loans for those with incomes below $125,000 or families with incomes below $250,000. Pell Grant recipients who demonstrate greater financial need typically receive an additional $10,000 in loan forgiveness.

What should people do to start repayment again?

There’s not a lot of time between now and the student loan repayment pause that expires on Dec. 31, but people need to “get their financial house in order,” Marks said.

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Here are some steps to take before the end of the year:

  • Start cutting expenses and increasing savings, Marx said, acknowledging that it had been a rough year with the highest inflation in a generation. Times “call for prudence and creativity,” he said, adding that when he and his wife first got married and had little money, they took long walks instead of going to the movies or spent their date nights grocery shopping — neither of which cost much money.
  • Find out what your payments will be And will you be able to afford them. If not, and you don’t qualify for forgiveness, it might make sense to refinance at a lower interest rate if possible before resuming payments, said Randy Lupi, financial professional with Equitable Advisors. However, once the loans are refinanced with a private company, they are no longer eligible for any federal forgiveness programs, he said.
  • Check your eligibility for other government loan forgiveness programs. “For example, individuals in the nonprofit sector qualify for Public Service Loan Forgiveness, which has no cap on the amount of forgiveness, and should take this time to make sure they are properly enrolled,” Lupi said.
  • Consider paying off your debt before January 1st. Because a student loan repayment break includes a 0% interest rate, 100% of payments made during the break go toward your principal, said Eric Schuppenhauer, head of national banking and lending at Citizens Bank. If you trim your loan amount, you can cut the length of the loan and save money in the long run.
  • Check your eligibility for income-driven repayment plans. Federal student loans offer income-driven repayment plans that lower your monthly payments.
  • Check with your employer. An Employee Benefit Research Institute survey last year showed that 17% of employers offered student loan loan assistance and another 31% offered a plan. For example, Aetna matches employees’ US-based student loan payments of up to $2,000 per year on qualifying loans up to a lifetime maximum of $10,000; PwC offers associates and senior associates up to $1,200 per year toward student loans; And Google will match up to $2,500 a year.
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Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

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