Student Loans Forgiveness: What To Do Now?

Jeopardy! for the Win!!!

While watching Jeopardy! a few weeks back, there was a young woman, who just became that rounds new Jeopardy! champ. To her shock and disbelief after winning Final Jeopardy!, and being declared the new Jeopardy! Champion winning roughly $32,000 for that night, her reaction was, “I can pay off my student loans”.

Jumping forward a few weeks later, this young lady is still the Jeopardy! champion, has qualified for the next tournament of champions, can pay off her student loans more than 10 times now, and all at the age of 23. First, I want to say congratulations to her on this accomplishment, but second, I want to point out the forethought of this 23-year-old. After winning just over $30,000, her immediate thought was to pay off her student loans.

With the current discussion of possible loan forgiveness, and the recent extension for some loans to be postponed until September, the idea of using her winnings to pay off her student loans is the exact mindset everyone should be taking with their loans right now.

Yes, there is talk of student loans being forgiven by the current administration. But that talk has been happening for quite a while now (this being the 6th extension granted since the Covid-19 Pandemic started two years ago), and is not a sure bet. Have ever heard the saying, “Don’t count your chickens until the eggs have hatched”? Regardless if you have or haven’t heard this saying, it is something you should keep in mind while planning on how to pay off these loans. Because you cannot plan on these loans being forgiven, or even extended again. So rather than feeling the purse strings tighten, and a sense of anxiety come over you when they finally do activate payments again, wouldn’t you rather feel more at peace knowing you have money in the bank, with a plan of attack?

What is my plan of attack?

Of course, we all wish we could win $32,000 on a game show and not need to worry any further, but unfortunately, that doesn’t seem like the likely scenario for many of us.

Our advice at Whitaker-Myers Wealth Managers is to continue to save and put money towards those student loans during this time “off”.

If you can afford it, take the minimum payments you owe each month on your student loans, and put those dollars in a sinking fund titled “Student Loans”. House your money in this savings account, knowing it has a short-term purpose. This way, you are setting aside the money you will eventually have to pay (mind you without the interest tied to it at this time), and putting it in a place with a purpose, not tempting you to spend it on something for the here and now.

If you have other bills or debt that you would like to try and pay off during this grace period, that is fine and understandable, but we suggest you still try to put a little something away each month towards these loans to give you a leg up vs. trying to rearrange things once they become active again.

Remember, every little bit helps for the big, long-term goal.

Why should I save now if I don’t have to pay now, or they will just be forgiven in the end?

Because only 1 of 2 positives will come from this. Let’s review each scenario and see how putting money aside today, will be a benefit to you in the future.

Scenario 1: Loans are not forgiven but activated in September 2022

  • Let’s say your minimum loan payment is $450 a month.
  • This is the beginning of May.
  • If you put $450 away each month through May, June, July, and August to start paying in September 2022, you have saved $1,800 interest free dollars that you can throw at your loans right away. You’ll actually be ahead with paying off your loans, because you’ve been able to throw a large dollar amount at them with no interest attached to it, saving you more dollars in the end.

Scenario 2: Loans are forgiven and you do not need to pay on them anymore

  • Let’s go with the same details as above.
  • Your minimum loan payment is $450 a month.
  • This is the beginning of May.
  • If you put $450 away each month through May, June, July, and August 2022, you have saved $1,800 interest free dollars.
  • You can now put this right into your bank account – OR – You can now apply this to your debt snowball if you have any other outstanding debt.

The end lesson is – it is still a win-win scenario for you.

But you still have to put in the work.

As I have said earlier, you cannot bank on your loans being forgiven. All you can do is plan accordingly and give yourself the best advantage of this time “off” opportunity.

Yes, I am sure many of those who have this time “off” are daydreaming of other ways they can “spend that money now”, but the reality is, it should still be going towards those student loans. Because when the time comes around that they reactive those loan payments, are you going to still be okay with the purchases you made with “all the extra money” you had these last few months, or are you going to wish you had started to put it aside to pay off the loans that are now knocking at your front door again? If the answer is no, or even an “I don’t know”, the solution is to start saving and putting money aside today.

So then when, and only IF, that day does happen that they forgive your student loans, it’s like you’re giving yourself an unforeseen bonus with all that money you have already set aside.

If you have questions about how to handle your specific student loans situation or you need help prioritizing your debt, or finding ways to save in your monthly budget, visit our website and see how our financial coaching can help you today!

Author: Lindsey Curry, Financial Coach