There have been many rumors of federal student loan forgiveness, as well as several different plans that could bring that type of plan to fruition — at least for some. For example, Senate Democratic Chairman Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) have called on President Biden to forgive $50,000 of state student loan debt per borrower through executive power. Meanwhile, the Biden administration once proposed waiving a lower amount of up to $10,000 in state student loans per eligible borrower.
Not surprisingly, there are income caps that would limit who can receive this support. There’s also an excellent chance that none of this will happen at all.
Fortunately, borrowers with federal loans can wait and see. Currently, federal loan interest rates are set at 0% and all required payments are suspended until September 30, 2021.
But even if Biden and Congress don’t act, there may still be options for student loan assistance that you haven’t uncovered.
Real help for people with student loan debt
If you believe with all your heart that the federal government will pay off your student debt, you should stop reading here. For everyone else, be aware of all the potential relief opportunities you might have access to right now, whether or not full forgiveness actually occurs. Here are some of the best ways to reduce borrowing for college or manage federal or private student loan debt you already have:
Jacqueline Barrett, business lead at SoFi at Work, says all employees should consider potential tuition and student loan repayment benefits when comparing benefit packages offered by prospective employers. Many companies have begun offering employer tuition contributions to help with the student loan debt crisis, and this perk can help workers receive direct payments on their student loans.
Barett says the recent spike in employers now offering the benefit was inspired by a provision in the CARES Act, recently extended through 2025, that allows employers to deduct pre-tax employer payback assistance dollars of up to $5,250 (annually) for eligible employees spending on education.
“This provision is a great tax break for employers and employees,” says Barrett. Not only that, it can have a real impact on an employee’s life.
As a side note, employers can even use platforms like Gift of College to facilitate employee payroll deductions and optional employer contributions to student loans, 529 college savings, and 529 ABLE accounts.
Be on the lookout for grants
Students who are still paying for college or planning to pursue higher education should ensure they access any potential scholarships they may have access to.
Bob Collins, Western Governors University (WGU) vice president for financial aid, says scholarship funds are especially important because you don’t have to pay them back. There are several government grants (like Pell Grants) that are only for students with exceptional financial needs. However, there may be grants in your state that could provide assistance based on financial need, merit, or other criteria.
Collins says you should fill out your Free Student Aid Application (FAFSA) sooner rather than later, or even if you’re just considering going to college.
“Federal and most state grant money is dependent on your filing with FAFSA, and states make award decisions at different times, so submit as early as possible to meet deadlines,” he says.
Be selective about your repayment schedule
There are quite a few repayment plans to choose from when it comes to federal student loan repayments. The standard ten-year amortization schedule is always possible, but there are also extended amortization schedules that allow you to repay your federal student loans over up to 25 years.
Mark Kantrowitz, the author of How to Appeal for More College Financial Aid, says that many are better off choosing the shortest payment plan they can afford considering the higher monthly payment they will incur.
“A longer repayment period reduces the loan payment but increases the total interest you pay over the life of the loan,” he says.
If you’re still in school, you should also try to avoid interest capitalization, he says.
You can do this by paying interest accrued while you’re in school so your student loan balance doesn’t keep growing.
“Otherwise, your loan balance can be up to a fifth higher when you close it,” says Kantrowitz.
Also look for discounts that might apply to your payment plan, such as discounts. B. Discounts for using Autopay. Kantrowitz says many lenders offer slight rate cuts when borrowers sign up for automatic payments, which can also help when it comes to making sure you never default on your student loan bill.
Take a look at existing student loan forgiveness programs
Students who want to pay as little as possible on their student loans but want waivers in the end should also look into income-based federal student loan repayment plans. Plans like Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income Contingent Repayment (ICR), and Income Based Repayment (IBR) allow you to pay a percentage of your discretionary income on your loans for 20 to 25 years , then ultimately forgive what is still left.
According to StudentAid.gov, your monthly payment could be as low as $0 on these plans if your income is low enough.
In any case, you should keep in mind that for the time being, loan amounts that are waived are considered taxable income. This means you could be stuck with a student loan tax bomb if you use one of these plans long enough to waive your remaining balances.
In the meantime, let’s not forget about Public Service Loan Forgiveness, or PSLF. This program is available to borrowers who agree to serve in eligible government service positions for 10 years during which they make 120 on-time payments on their loans using an income-based repayment schedule.
While eligibility for this program is very specific and applications have historically been fraught with issues, ultimately PSLF can lead to full forgiveness in 10 years if you diligently follow the plan rules to the “T”.
Consider refinancing your loans
College Ave Student Loans CEO and co-founder Joe DePaulo also says borrowers may consider refinancing their student loans, which could result in lower overall loan costs, a lower monthly payment, or both.
However, he warns to be cautious about refinancing federal and private student loans together because “you will lose the unique benefits and protections of your federal loans.”
Refinancing federal loans with a private lender also means you waive your right to switch to an income-based amortization schedule or to apply for forgiveness through PSLF.
Plus, all you have to do now is plan ahead. With federal student loan payments and interest currently on hold until September 2021, don’t rush a decision about federal loan refinancing, DePaulo says.