When do student loans start again?

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when do student loans start again

If you currently have student debt, you’re likely wondering when you are required to start paying on your student loans again. You might also be hopeful that your student loans will be forgiven. 

During President Biden’s campaign, he discussed forgiving a large percentage of student loans entirely, but that has not happened yet. Student loans put a tremendous amount of financial pressure on millions of Americans. 

Would forgiving student loans be good for the economy, and when do payments for student loans start again? 

Economic benefits of forgiving student loans 

Why are student loans such a problem? After all, shouldn’t one be responsible for paying back the money they borrowed to fund a life expense? Without question, if someone takes out a loan, they are entering a contractual obligation to pay back that loan at a later date.  

However, economists are looking at the massive student debt burden and questioning if the economy would be better off if that burden didn’t exist. The argument to forgive student loans is a polarizing one. Both sides present interesting and strong reasons as to why they should or shouldn’t forgive student loans. 

The downside of student loans 

Let’s review some of the downsides of student loans are. On average, the typical college graduate has $36,000 in student loans. This is a massive figure and often equates to monthly payments in excess of $300 – $400. 

Not only is this a massive figure in present times, but college is also becoming increasingly more expensive. Plenty of college graduates are graduating with a standard degree, and are six figures + in student debt!  What side effects does this have on the economy?

There are a variety of variables that are impacted by a crippling student loan amount. 

The housing market 

It is more common for people to have roommates into their late 20s or early 30s. Having a roommate isn’t a bad thing, but it certainly limits the amount of money a landlord can make from renting their properties and may delay homeownership – which is America’s cash cow. 

Additionally, many loans, such as a mortgage, all require one’s debt-to-income ratio to be within a certain threshold. If one is drowning in student debt, they may not qualify for a home as expensive as they’d like to purchase because a bank believes they are over-leveraged in debt. 

COVID-19 challenges 

Recent college graduates are also struggling to find jobs that pay them high salaries. This struggle was exacerbated by the economic conditions brought on by COVID-19. The lack of high salaries is putting additional financial pressure on recent college graduates. 

Delaying other life events 

A young couple may choose to have a child later in life as they are not financially stable enough to bring a child into this world as they balance student debt payments and subpar economic conditions. 

How is the Government reacting? 

The United States, and the world, are going through unprecedented economic times. In the United States, the Federal Government has paused the requirement for those carrying student debt to pay their standard monthly debt payment until May 1, 2022. This is providing a great deal of financial breathing room to millions of Americans, as their student debt payment is essentially on hold for an additional 90 days. This is not the first time the required student debt payment has been on hold, and it may not be the last. 

What should you do with your student debt? 

Student debt is bringing a great deal of uncertainty to those that are currently carrying the debt. In one breath, the student debt holders are happy they do not need to make a payment until May 1, 2022. However, in another breath, they are questioning if they should continue making their monthly payments, or if their debt will be entirely forgiven. What should you do?

Unfortunately, there is no right answer, nor is there a one size fits all answer. Here are some common ideas many are taking into consideration. 

Refinance your debt 

Right now, interest rates are at, or near, all time lows. If you currently have student debt with a high interest rate, refinancing this debt may be in your best long term financial interest if the interest rate today is lower than what you’re paying. Therefore, when/if you are required to pay back your debt, you’re saving quite a bit of money on the interest expense. 

Pay off your debt

There are many benefits of being debt free. If you don’t believe the government will forgive your student debt, you can continue to pay off this debt as you please. The lender is still accepting payments. You just aren’t required to pay anything until May of 2022. 

Hold the line

Considering the uncertainty, holding the line may be the best option. You can ‘pay yourself’ your typical student debt payment, and put that money in a separate bank account. If/when your debt becomes due, you have the money to pay. 

But if student loans happen to be forgiven in full, you saved all that money! There is no legal rush to pay off the student debt currently, so maintaining that flexibility, and optimism that the debt will be forgiven is a solid option. 

What does the future have in store? 

This is the trillion-dollar question. Will Biden forgive student loans in 2022? Will he do it at all during his presidency? There are plenty of reasons why student loan forgiveness under Biden makes sense. 

The positive impact this could have on the economy is great, and it may present plenty of other economic opportunities that are currently being masked currently. However, there could also be downstream consequences of this action. At this time, there is no certainty that student debt will be forgiven. We must take it week by week for the time being, or at least until May 1, 2022, before there is more certainty on this heavily debated topic.

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