Here are some smart moves borrowers should make while the fate of student loan forgiveness still hangs in the air – CNBC

President Biden: 22 million people have applied for student debt forgiveness

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1. Make the most of extra money

With the headlines warning of a possible recession and the number of layoffs, experts recommend trying to set aside the money you normally spend each month on your student debt.

Certain banks and online savings accounts have been raise their interest, and it’s worth looking around for the best deal available. You just want to make sure that whatever account you deposit your savings into is FDIC insured, meaning you can keep up to $250,000 of your deposit is protected against loss.

And while interest on federal student loans is zero, it’s also a good time to make progress on paying off more expensive debt, experts say. The average interest rate on credit cards is currently over 19%.

2. Consider paying anyway

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If you have a healthy rain fund and no credit card debt, paying off your student loans even during the break can make sense, experts say.

However, there is a big caveat here. If you are enrolled in a income-related repayment plan or pursue forgiveness of public service loansdon’t want to keep paying your loans.

That’s because months during the government’s payment hiatus still count as eligible payments for those programs, and since they both result in forgiveness after a certain amount of time, any money you throw at your loans during this time reduces the amount that you will eventually get. excused.

3. Review your options for when payments resume

If you are unemployed or dealing with other financial problems, you can apply for one economic hardship or postponement of unemployment. Those are the ideal ways to defer your federal student loans because no interest is charged.

However, if you don’t qualify for either one, you can get one tolerance to continue to suspend your invoices. Keep in mind that with forbearance, the interest will accrue and your balance will be larger – possibly much larger – when you pay again.

4. Check whether refinancing now makes sense

Higher education expert Mark Kantrowitz had previously recommended that federal student loan borrowers refrain from refinancing their debt with a private lender as the Biden administration deliberated on how to proceed with forgiveness. Refinanced student loans do not qualify for the federal exemption.

Now that borrowers know how much loan forgiveness is on the table — if the president’s policy survives the Supreme Court — borrowers may want to consider the option, Kantrowitz said. With the Federal Reserve expected to continue raising interest rates, he added, you’re more likely to get a lower interest rate from a lender today than later.

Still, Kantrowitz added, it’s probably a small pool of borrowers for whom refinancing makes sense.

Your rate doesn’t matter if you lose your job, have sudden medical expenses, can’t make your payments, and find default is your only option.

Betsy Mayotte

president of The Institute of Student Loan Advisors

That includes borrowers who don’t qualify for the Biden administration’s forgiveness — the plan excludes anyone who earns more than $125,000 as an individual or $250,000 as a family — and those who owe more on their student loans than the administration intends to cancel, he said. The latter borrowers may want to look at refinancing the portion of their debt above the exemption amounts, he added.

Still, borrowers should first understand the federal protection they’re giving up by refinancing, warns Betsy Mayottepresident of The Institute of Student Loan Advisors.

For example, the U.S. Department of Education allows you to defer your bills without accruing interest you can prove economic hardship. The government also offers loan forgiveness programs teachers and officials.

“Your rate doesn’t matter if you lose your job, have sudden medical expenses, can’t make your payments, and find that default is your only option,” Mayotte said in a previous interview about refinancing.

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