Since President Joe Biden was elected, people have been anxiously awaiting news about the possibility of student loan forgiveness in 2021. While Biden is likely to make some changes to benefit federal loan borrowers, it could take some time before those changes take place.
Instead of waiting for loan forgiveness or other initiatives to occur, here’s what you can do now to manage your loans more effectively.
President Joe Biden on student loans: What are his plans?
During his campaign, President Biden made it clear that he plans to offer relief to student loan borrowers through partial loan forgiveness. But what that relief will look like is still up for debate.
Some Democrats differ from Joe Biden on student loan debt and are lobbying for $50,000 in student loan forgiveness in 2021.
However, Biden has said he won’t push for $50,000 in forgiveness and will instead support a plan to cancel just $10,000 in federal student loans for each borrower.
Biden said he won’t use executive action to issue loan forgiveness and will go through Congress instead. Since there is some opposition to the idea of canceling any student loans, it could be a lengthy process before the government passes any loan forgiveness measures.
What to do until student loan forgiveness occurs in 2021
Assuming that Biden’s position on student loans doesn’t change in the near future, it could still be months before there is any progress for loan forgiveness measures. In the meantime, this is what you can do to manage your loans more effectively:
1. Take advantage of the CARES Act interest waiver
President Biden extended the CARES Act’s relief measures until September 2021. Until the end of September, the interest rate on all outstanding federal Direct loans is set at 0%, and loan payments are suspended.
If you have federal Direct loans, now is an excellent opportunity to accelerate your repayment. If you can afford to make payments right now — even though payments aren’t required — you can chip away at your loan principal faster since the loans aren’t accruing interest. That will help you pay off your debt more quickly and save money on interest charges once the CARES Act expires.
2. Make extra payments toward your private student loans
Another strategy you can use while the CARES Act is in effect is using your money to target certain accounts. If you have both federal and private student loans, your federal loan payments are currently suspended. If you’re still working and have income coming in, you can use the money that would normally go toward your federal loan payments and instead pay extra toward your private loans.
Private student loans tend to have higher interest rates and fewer benefits than federal loans, and private student loans aren’t eligible for the CARES Act benefits or student loan forgiveness programs. Since your federal loans currently have a 0% interest rate, targeting your private loans makes sense and can be an effective way to save money and speed up your debt repayment.
3. Accelerate repayment (but don’t pay off all of it)
Currently, it looks like President Biden will push for $10,000 in federal loan forgiveness. Seeing as the average student loan borrower has nearly $30,000 in student loan debt, student loan forgiveness will likely cancel only a portion of your debt.
If you can afford to continue making payments through September, it’s a smart strategy to reduce your loan principal. However, it’s a good idea to stop making extra payments once you reach a $10,000 balance so that you can qualify for the full amount of loan forgiveness once it passes.
4. Consider student loan refinancing
If you have private student loans or high-interest federal loans — such as Grad PLUS Loans or Parent PLUS Loans — now is a great time to refinance your student loans due to lenders offering historically low rates.
Refinancing is a method for managing your loans where you apply for a loan from a private lender for some or all of your current student loans. Since refinancing loans are based on your credit, income, and selected loan term, it allows you to potentially lower your interest rate, change your repayment term, and even lower your monthly payment.
The savings can be significant. For example, let’s say you had $30,000 in Grad PLUS Loans at 7.08% interest and a 10-year repayment term. By the time you paid off your loans, you will pay nearly $12,000 in interest charges.
But say you refinanced your loans and opted for a shorter loan term. If you selected an eight-year term and qualified for a 5% rate, you will pay just $6,461 in interest. Refinancing your loans would allow you to save over $5,400, and it takes just a few minutes to refinance your student loans.
|Original Loan||Refinanced Loan|
|Loan Term||10 Years||8 Years|
Worried about missing out on the projected $10,000 in student loan forgiveness expected in 2021? You don’t have to refinance all of your existing loans; you can refinance only some of them. For example, you can decide to refinance only your private student loans or refinance all but $10,000 of your federal student loans. By leaving that $10,000 in federal loans untouched, you keep them as federal loans and will still be eligible for student loan cancellation.
If you decide to refinance your loans, make sure you compare rates and loan terms from top lenders. Purefy’s Compare Rates tool simplifies the process, giving you multiple quotes without affecting your credit score.