Student Loan Forgiveness — Is It In Our Future?

Lucas Casarez

President-elect Joe Biden’s presidency will herald in many changes. One change that is top of mind for many Americans is student loan forgiveness.

Until recently, it wasn’t Joe who was driving the conversation but rather other members of the Democratic party who are known to be big supporters of student loan forgiveness. From those members, numbers range from $50,000 to all student loans. So far, these numbers are not tied to the number that Biden himself has mentioned.

Generally, I don’t comment on hypothetical scenarios, especially when it involves political promises or expectations. But student loan repayment strategies you may be able to implement are becoming more likely so I wanted to offer my observations.

Ever since Covid-19 hit Federal Student Loans have been in forbearance. No payments have been required and no interest or penalties have accrued. But unless it is extended, this forbearance period is set to expire on December 31.

Joe Biden was recently asked if student loan forgiveness is in his plans. Here is a summary of his comments and my observations:

Joe says student loan forgiveness does factor into his plan and should be done immediately.

He was asked if he’d make an executive order to forgive student loans (which would bypass the need for Congress’s approval):

Joe’s response didn’t address the executive order part of the question.

Joe mentioned $10,000 in immediate forgiveness, which was included in a piece of legislation passed by the Democratic House but that hasn’t been passed by Congress into law.

Joe talks about making 4-year college education free if your income is under $125,000.

Joe talks about a fundamental change needed in the current student loan public service forgiveness program to include everyone.

My previous recommendation to clients is to not actively pay principal payments towards their student loans but instead save those payments in a separate account. When/if student loan repayments begin January 1, it may be worth considering making minimum payments until we have more confidence in the possibility of student loan forgiveness. This is definitely something I’m keeping an eye on.

What’s more likely to happen first, because it’s the easiest thing to do, is another extension of the forbearance period. This buys time and has the short-term effect of not squeezing student loan borrowers with an additional payment in the middle of a pandemic.

It will be interesting to see if the battle for student loan forgiveness is settled in at $10,000 — $50,000 — or all of it!

Regardless, prepare like you’ll have to pay it, which means continue saving your normal payments in a separate savings account. If your student loans are forgiven, you can apply that money to another important goal.

If, on the other hand, nothing is forgiven, you can then make a large principal payment and reduce the interest your loans would otherwise incur.

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Lucas Casarez is a husband, father of three amazing kids, and a Certified Financial Planner™.

He founded Level Up Financial Planning, which is one of the few fee-only financial planners in Northern Colorado. The mission of Level Up Financial Planning is to guide his clients to take their financial confidence to the next level!

Have a personal finance question you would like me to answer in a future week? E-mail:

[email protected]

Lucas Casarez

Certified Financial Planner®

970-222-6783

“Take Your Financial Confidence To The Next Level”

www.levelupfinancialplanning.com