Student Loan Forgiveness - How to Maximize the $10,000 Debt Cancellation

By Sara

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Last Updated: August 26, 2022

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As of August 24, 2022, President Biden has announced that he will cancel $10,000 of federal student loan debt for borrowers making less than $125,000 a year.

If you are a Pell Grant recipient, that amount will be $20,000. President Biden also announced that federal student loan repayments would be paused throughout the rest of the year. Payments will begin again on January 1, 2023. 

This is massive news for almost 43 million people who will have at least $10,000 of their loans forgiven. In addition, about 27 million people will have $20,000 forgiven as they received a Pell Grant. Twenty million people will have all of their student loans ultimately paid off. 

What does this all mean if you have federal student loan debt, and how can you make the most of this news for the rest of the year?

First, with this big news, making the most of the forgiveness and payment pause is essential. 

 

 

Make the Most Out of Federal Student Loan Forgiveness & Payment Pause

If you have federal student loans and qualify for student loan forgiveness, ensure you stay current on this news.

The Department of Education will create a website in the following weeks with information on this relief and a form to apply for this relief.

It is unknown how the $10,000 will be distributed - will it be applied to loans with the highest interest, or will it be divided evenly among your loans? This information could change some folk's strategies to repay back their student loans. 

As of now, there are a few steps to take to ensure you know how much you owe and make a repayment plan to pay off the rest of your loans. 

 

Strategy for Paying Off Student Loan Debt  

Any federal student loan borrower should first log into their account and find out exactly how much student loan debt they have.

This is an excellent way to keep a record. Did you, in fact, get the $10,000 or $20,000 off of your loan to show in your balance? This will also help you be prepared on how much left you owe after the $10,000 or $20,000 has been taken off. 

The second thing to do is to list your loans in the order of smallest to largest.

Also, write out the interest for each loan. This is important to do as this is the first step to take when deciding how to pay off your student loans

List each loan from smallest to largest with their interest rate. Then make a plan on how you want to pay off your loans.

Since repayment is paused for four more months, you have the ability to lower your monthly payments by paying off some of your smaller loans. For example, if you have loans that are $1,000 to $2,000, try to make a financial goal to pay these off by the end of the year.

This will lower your monthly payments in January 2023 and hopefully make paying back your loans more manageable. You may also decide to tackle higher interest rate loans as interest has not been accrued during the repayment pause. This could positively impact the amount you owe in interest.

 

 

Make a Financial Goal 

If you can make a financial plan to tackle most of your debt after the $10,000 has been taken off, you may be looking at a financially easier year in 2023. Now is the time to re-evaluate your spending, make a plan, and budget to reach this goal. 

For example, if you have $15,000 of student loans and $10,000 get forgiven, you only have $5,000 left to pay back.

In four months, some people may be able to save up (or find a side hustle) to $5,000 and pay back their loans before payments resume in January of 2023. You'll no longer have monthly payments. Plus, you can focus on other financial goals like buying a home or car. 

If you have a larger amount, you may not be able to pay off all of your debt in four months. But you could knock off a decent amount in that time. You could significantly lower your monthly bills to pay off the remainder of your student loans more quickly while making monthly payments. 

 

 

Final Thoughts on Student Loan Forgiveness

This is exciting news for many Americans as National Student Loan Crisis is at its highest.

Many people will benefit from this. Some will be wholly done with their loans. Others will have the opportunity to finally pay off their loans if they feel overwhelmed by how much they owe.

Consider using the remainder of this year to make a plan. You can pay off as much of your debt as you can to start 2023 on a positive note. Over the past few years, many people have had a challenging time. We could all use a brighter 2023, and this may be the answer for many individuals.

Photo by Ivan Samkov

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