Student loan forgiveness, Part III.

This past week, a Federal Judge in Texas ruled the student loan forgiveness announced earlier this year unconstitutional.

If you are someone expecting student loan relief, these last few months might feel a bit like a rollercoaster. And not the fun kind.

Earlier this year, news spread that POTUS would announce whether there would be any sort of student loan forgiveness. The pause on payments, which has been in place throughout most of the past two years, was slated to end and the next move would be revealed.  That day came, and in August, the President administration announced that federal student loan borrowers could receive up to $20,000 of student loan relief[1].

To many, this was great news—it lowered their student loan burden. For others, it felt like it wasn’t enough. For some, it completely wiped out the balance of loans owed. It made no impact on others – either they didn’t have loans or their loans were not of they type that would qualify under this relief plan. Nevertheless, those waiting for student loan forgiveness, eagerly anticipated the day that the application for relief would be made available. In fact, over 26 million American applied for student loan forgiveness since the application was made available in October. Many of those applicants have expected their student loans to be forgiven before the end of the year and it has since become a waiting game.

And now, it has stalled completely, for the time being.

So, if you are someone who is anticipating student loan forgiveness under the announced relief plan, here’s what you can do:

Continue to wait optimistically, but don’t stop your progress.

The decision by the judge in Texas has been appealed to the 5th Circuit Court of Appeals. Appeals can be lengthy processes. Depending on the outcome of the case, a subsequent appeal may occur. Buckle up, folks.

For some of my clients, the announced relief would wipe out their balances and they would move on to the next step in their financial plans (either paying off other debts, bulking up emergency funds, saving for retirement, or saving for other big-ticket purchases). Knowing there is a possibility this relief won’t happen might feel like the wind is knocked out of their sails. It probably feels really disappointing. Even angering. Take the time you need to process it.

Then, I encourage this:  If you are expecting student loan relief based on what was announced earlier this year, factor the relief into your financial planning and plan as though it won’t happen.

Get off a rollercoaster as fast as you possibly can when it isn’t fun for you. Debt tends to be one of those rollercoasters that isn’t fun. And, when it is so intrinsically tied to politics (as this issue has become), it is especially unpleasant. When you aren’t on the rollercoaster and you can just be a spectator, the turmoil is lessened. Continue your plan to be debt free and work to get to a place where you are in control and are not (so greatly) affected by other’s decisions.

If you are paying down your student loan debt and being whipped around by these announcements, continue to hope for the best, while actively planning your escape route. Map out getting out of your loans. Be done with them as fast as possible.

For now, it seems as though repaying loans is still scheduled to begin in January 2023. Interest will begin accruing. If you have a balance in January, it would be wise to begin repaying. Under the current information, refunds will be issued for payments made that would have otherwise been forgiven. Alternatively, make the minimum payments on your student loans and work towards your next goal while we await the news. Regardless, act deliberately. Don’t let this derail you.

If you have not yet applied for student loan relief, sit tight. The application process has been temporarily stopped pending the appeal. If you already applied, continue to wait. 16 million applications were approved prior to this latest setback, and if relief does go forward, it seems as though it will happen quickly. You can subscribe to updates from the Department of Education about relief on its site here. Updates are timely and helpful.

Don’t know your next step? Let me help you make a plan. Get clarity on what your debts are. From clarity comes action. Once you have that clarity, work to make your deliberate plan. 

[1] To learn more about the legality of the debt relief from the perspective of the Biden Administration, the Department of Justice wrote a memorandum opinion about how this relief is allowed. You can read it here.