What should I do about my student loans right now?

Photo-Illustration: The Cup; Photo: Getty Images

I am 30 years old and I earn $84,000 a year working in university administration. Before the pandemic, I was shelling out nearly $400 a month in student loan repayments. I still owe about $60,000 and figured I’d pay it back into my 40s, if not longer. But since student loan repayments were suspended, I haven’t paid anything and my finances are in much better shape. I used the extra money to get rid of my credit card debt (about $2,000), build an emergency fund ($10,000), and contribute more to my retirement plan. For the first time in my life, I feel financially secure.

However, I feel like I can’t really plan for my future because I don’t know when these loans will come back to haunt me. Lately I’ve been thinking about saving up to buy a house. I live in a big city and I’m tired of wasting nearly $1,500 a month on rent. But every time I think I can afford to buy, I remind myself that I have to be ready to start paying my mortgage bills again, whenever the government decides to raise them. My mom thinks I should pay them now anyway. But I also heard that they might be canceled (?!), so I don’t want to keep paying them if it turns out that I don’t have to. How do I know what kind of house I can afford if I don’t know when (or if) I’ll have to pay those student loan bills again? Or should I put all my extra money towards them now, instead of doing bigger projects?

For what it’s worth, you’re in good company. Federal student loan bills have been pending for over two years now, which is long enough to get used to living without them — and to start enjoying them. During this period, student borrowers ended up with an “extra” of $393 per month, on average; like you, most of them used that money to pay off credit card debt, improve their credit score, and fund long-term goals like home ownership. Obviously, no one wants to lose that momentum.

This puts the Biden administration in a difficult situation. I won’t go into too much detail about the education policy goals he’s been campaigning on (if you want, you can read more about them here), especially since he’s supposed to be announcing plans soon. more concrete. What we know for now is that the loans are still frozen. What’s the best way for you to enjoy it?

The good news is that federal lenders won’t be knocking anytime soon. The refund pause was recently extended until September, but it will likely be pushed back again. “It seems highly unlikely that anyone will receive a federal student loan bill this calendar year,” says Mike Pierce, executive director of the Student Borrower Protection Center. “The president doesn’t want to restart student loan payments for 35 or 40 million people a few weeks before the midterm elections.”

Along with another extension of the hiatus, Biden is expected to unveil more accessible paths to debt cancellation. Nobody knows exactly what he is up to, but there are many speculations that he will take executive action to reduce a certain amount from the balances of all student borrowers. “$10,000 is the number floating around right now, but it’s not a done deal,” says Michael Kitchen of Student Loan Hero. “Some Republicans in the Senate are already working on a bill that would ban the White House from forgiving student loans, and it could also be challenged in court.” (That’s why Biden originally wanted student loan forgiveness included in a pandemic relief package passed by Congress, but didn’t have the votes to pass it.)

As for rumors that Biden will forgive debt entirely or write off up to $50,000? Don’t bet on it – he’s never backed any such initiatives, and he probably won’t start now. But he backed broader access to targeted policies that do something similar – including the Civil Service Loan Forgiveness Scheme (or PSLF), which gives loan forgiveness to people who have worked in the civil service. public (such as in schools, nonprofits, or government). ) while paying off a student loan for at least ten years.

The original PSLF was a dumpster fire of confusing paperwork that rejected nearly 98% of applicants, but Biden is fixing and expanding the system. Anyone who works in the public service, or has done so in the past, is currently eligible to enroll (or re-enroll) in the program until October 6 and receive credit for payments that did not previously count. . If you’re not sure if you qualify, now is the time to inquire, especially since you work at a university. (Pierce recommends the pardonmystudentdebt.org website for clear, step-by-step instruction videos to guide you through the process.)

If you’re hoping to buy a home, you’ll need to consider your student loans when you start looking. There are plenty of mortgage calculators out there that will help you figure out how much home you can afford based on your debt-to-income ratio. You should also see if you qualify for an income-based repayment plan for your student loans (if you don’t already have one), which calculates your monthly bills based on your discretionary income (i.e. i.e. whatever is left after essential costs like mortgage payments). Pierce says future Biden policies are likely to provide more opportunities for student borrowers to convert their repayment plans to this model.

You asked a great question about whether you should take advantage of this zero rate period to pay off your loans faster. It used to be considered a good idea, if you could afford it. But at this point, Pierce says that’s not the best use of your money. “With inflation on the rise, I wouldn’t recommend anyone pay off their balance right now,” he says. “As long as the interest rate remains at zero, it is better to pay off your loan with 2023 dollars than with 2022 dollars.” In other words, your $60,000 balance is already worth less than it was in 2020, and it will continue on that trajectory as the value of the dollar continues to fall.

In this landscape, waiting to repay your loans costs you nothing. And it will give you the added benefit of seeing what Biden decides to do about them. Don’t hold out hope that your debt will disappear entirely, but chances are this administration will provide some strategies to make it less daunting and inconvenient to your home buying plans.

James V. Hayes