With the student loan debt relief application officially open, millions of Americans are on their way to having $10,000 or more in loans forgiven. For many, it’s just a drop in the bucket.
As many as 40 million Americans could benefit from the forgiveness initiative, and 45% of people with student loans will have their debt wiped out completely, according to an estimate from the Congressional Budget Office.
However, a majority will still be paying down their balances even if they qualify for relief. Plus, the nearly three-year moratorium on payments will end Dec. 31, meaning student loans are set to become a significant financial hassle once again for many borrowers.
That includes those who make more than the qualifying income cap for relief — $125,000 per year or $250,000 for married couples — but still feel buried under mountains of debt.
“For a lot of us, we’ve forgotten what our student loans look like and what we’ll have to pay toward them,” said Jacob Channel, senior economist for LendingTree.
Here’s what financial experts recommend right now for dealing with student debt, beyond applying for the $10,000 in forgiveness.
Apply For A Refund
Payments made during the pandemic pause can be refunded and then forgiven.
“For a couple of my clients who have paid off their loans over the payment suspension period, we plan to apply for a reimbursement of the $10,000 which can pay them back and provide them more cash to invest or save towards their other goals,” said Leland Gross, founder of PeaceLink Financial Planning in Virginia Beach, Virginia.
The Department of Education has said that some borrowers will automatically receive refunds when they apply for student loan forgiveness through the recently opened application. Those with direct, FFEL or Perkins loans that are held by the Department of Education are still eligible to receive refunds, but they need to contact their loan servicers.
Erik Kroll, certified financial planner and owner of Student Loans Over 50, recommends checking if your loan servicer has changed, since some companies stopped servicing federal loans during the pandemic.
Start Making Payments
Now that President Joe Biden has confirmed $10,000 will be forgiven for eligible borrowers, some advisors say it’s time to start paying down federal loans above that amount.
Although it would be wise to tackle higher-interest debt like credit cards or private student loans while payments are still paused, paying down federal loans now could set you up for better financial health next year, according to Leanne Rahn, a financial advisor at Fiduciary Financial Advisors in Grand Rapids, Michigan.
“You can really bring down that balance so that by the time forbearance is up, you will be earning interest on less,” she said. “So zoom out, think big picture, and look at your overall debt balances and interest rates.”