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Friday, June 02, 2023

Hitting the books: What to know about student loan debt

Hitting the books: What to know about student loan debt

woman with student loans

The Currency editors


Student loan debt isn’t breaking news.

But it’s always hot topic of conversation in the U.S., with payment pauses and forgiveness policies making national headlines.

For most Americans, getting out from under usually tops their money to-do list as nearly 55% of people believe achieving financial freedom starts with being debt-free.1 Yet, student loan debt in our country continues to reach record levels, becoming the second-largest type for families behind home mortgages.2

Overall, the average borrower owes almost $30,000 as more than half of graduates leave school behind the 8-ball.3

You may be in a similar boat, but with so much happening in the world of student loan debt, it can be hard to keep up and even harder to understand. Here’s what to know and how it may impact you and your financial situation:

Forgiveness plan on hold

In August of 2022, President Joe Biden announced that the U.S. government would wipe out up to $20,000 of federal student loan debt for Pell Grant recipients and also forgive $10,000 for other eligible borrowers. If enacted, the move itself would completely erase the balances for nearly 14 million individuals while reducing the country’s outstanding education deficit from $1.7 trillion to $1.3 trillion.4

The proposed plan applies to qualified Americans who earn under $125,000 per year individually or married couples who earn less than $250,000.5

However, nothing is set in stone just yet.

Facing an array of legal challenges from lawmakers and politicians, Biden’s proposal is now in the hands of the Supreme Court.6 If the Court ultimately puts the kibosh on it, borrowers would once again be responsible for their remaining balances with payments resuming two months after an official ruling. According to reports, the outcome is still up in the air, while a decision is expected to be made in June.7

Pause still in effect

Another year, another extension.

But for how long?

Payments and interest on all student loans have been suspended since March 2020 as a COVID emergency measure. The current student loan freeze, which has been a critical part of pandemic relief efforts, will likely expire sometime this summer after Biden had previously extended the halt to December 31, 2022.8

Here’s where things get interesting: If the Supreme Court makes a final determination on the debt forgiveness plan before June 30, student loan payments will resume 60 days from that date. On the flip side of the coin, if a decision is made after June 30, payments won’t start back up again until 60 days later.9

Taking charge of your debt

Even if the Supreme Court gives Biden’s forgiveness plan a thumbs up, many people will still have student loan debt.

If you fall into this group, you don’t have to hit the panic button once your payments are due again after the pause is lifted. Help is available! When it comes to managing your own student loan debt, you have options:

  • The government offers several income-driven repayment plans designed to help low-income borrowers avoid defaulting on their loans.
  • You may also benefit from consolidating your loans. This process combines multiple monthly bills into one, potentially making it easier to stay on top of repayments.

(Note that consolidating can sometimes result in losing any credit you’ve earned toward forgiveness programs like Public Service Loan Forgiveness.)

  • If you feel your interest rate is simply too high, you can also try refinancing your loans through a private bank. If you do so, you’ll lose the protections that come with federal loans.
  • If you have a retirement plan through Empower, you may have access to additional resources designed to help with your specific situation. Check out the Empower Student Debt Solution for services and tools like college planning, auto-payments, and gamified repayment – a way to make loan payments using cashback from everyday purchases.

When it comes to student loans, there’s a lot of information to weigh. On top of that, college graduates who are 25 to 39 years old with a student loan are much more likely to struggle with their money compared to individuals without one.10 If you’re not sure on how to proceed with your student loan debt, it’s always good to speak with a financial professional.

Refinancing opportunities

Signed, sealed, sent.   

Not necessarily.  

When you put your John Hancock on the dotted line for your student loans, you agreed to a slew of conditions — most notably, that you’d pay that money back over a certain period. But nothing lasts forever, does it? In fact, just like with your mortgage or car loan, you may be able to change the terms of your deal.

If you still owe a chunk of change on your student loan, refinancing may help improve your overall financial picture.

Here’s why refinancing may be right for you:

Get a lower rate. If interest rates are lower now than they were when you took out the loan, you may be able to get a better rate. Doing so can save you a substantial amount of money over the life of the loan.

Drop your payments. Depending on the offer, your new loan may give you a lower interest rate or a longer term — or both, which can reduce your monthly payment.

Simplify your finances. When you’re paying off student loans, you’re often dealing with several different lenders. That can be a big hassle, especially if you encounter any confusion or need to ask a question. By consolidating your loans into one, you can make your life easier and alleviate any headaches, too.

Cut your co-signer free. Relationships change. There may come a day when your co-signer no longer wants to be on the hook for your student loans, and refinancing gives you a chance to let them off the hook.

Of course, refinancing may not make sense for you. If you have loans and an income-driven repayment plan, it may not offer the same benefits. Plus, not everyone is eligible to refinance their student loans. In general, you’ll need a good credit score and a reliable source of income to qualify. As with all loan-related decisions, it’s critical to read all of the fine print so you understand all the terms and conditions.

1 Empower, “Money Talks Survey,” January 2023.

2 CNBC, “Student loan debt hits another record high despite payment forbearance,” May 2022.

3 Forbes, “2023 Student Loan Debt Statistics: Average Student Loan Debt,” February 2023.

4 NPR, Biden is canceling up to $10K in student loans, $20K for Pell Grant recipients,” August 2022.

5 CNBC, “What’s at stake — by the numbers — as Supreme Court weighs student loan forgiveness,” March 2023.

6 CNBC, “When will Supreme Court rule on Biden’s student loan forgiveness plan? Here’s what you need to know,” March 2023.

7 Investopedia, “What Would Happen If the Supreme Court Blocks Student Loan Forgiveness?,” February 2023.

8 Nerd Wallet, “When Do Student Loan Payments Resume?,” March 2023.

9 U.S. Department of Education, November 2022.

10 Federal Reserve Bank of New York, “Who Is More Likely to Default on Student Loans?” November 2017.

Advisory services are provided for a fee by Empower Advisory Group, LLC (“EAG”). EAG is a registered investment adviser with the Securities and Exchange Commission (“SEC”) and subsidiary of Empower Annuity Insurance Company of America. Registration does not imply a certain level of skill or training. Investing involves risk. Past performance is not indicative of future returns. You may lose money. All visuals are illustrative only. Actors are not EAG clients.

The Empower Student Debt Solution is provided by Candidly, which is not affiliated with Empower Retirement, LLC or its affiliates.

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The Currency editors

Staff contributors

The Currency is a personal finance publication powered by Empower and run by a team of writers and editors. We deliver the financial news and views you need to know for life, work and play.

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