my two cents

What Should I Be Doing About My Student Loans Right Now?

Photo-Illustration: The Cut; Photo: Getty Images

I’m 30 and make $84K a year working in administration at a university. Before the pandemic, I forked over almost $400 a month in student loan payments. I still owe about $60K, and I figured I’d be paying it off well into my 40s if not longer. But since student loan payments went on pause, I haven’t paid anything, and my finances are in much better shape. I used the extra money to get rid of my credit card debt (about $2,000), build up an emergency fund ($10,000), and contribute more to my retirement plan. For the first time in my life, I feel financially secure-ish. 

However, I feel like I can’t really plan for my future because I don’t know when these loans will come back to haunt me. Lately I’ve been thinking about saving up to buy a home. I live in a major city and I’m tired of throwing away almost $1,500 a month on rent. But whenever I think I might be able to afford to buy, I remember that I need to be prepared to start paying my loan bills again, whenever the government decides to restart them. My mom thinks I should be paying them down right now anyway. But I’ve also heard that they might be canceled(?!), so I don’t want to keep paying them if it turns out I don’t have to. How do I know what kind of home I can afford if I’m not sure when (or if) I’ll have to pay these student loan bills again? Or should I be putting all my extra money towards them now, instead of making bigger plans?

For what it’s worth, you’re in great company. Federal student-loan bills have been on hold for over two years now, which is long enough to get used to life without them — and start to enjoy it. During this period, student borrowers found themselves with an “extra” $393 a month, on average; like you, most of them used this cash to pay down credit-card debt, improve their credit scores, and fund long-term goals like homeownership. Obviously, no one wants to lose this momentum.

This puts the Biden administration in a tough spot. I won’t get too deep in the weeds on the education-policy goals he campaigned on (if you want, you can read more about them here), especially since he’s supposed to announce more concrete plans soon. What we do know for now is that loans are still frozen. What’s the best way for you to take advantage of that?

The good news is that federal lenders won’t come knocking anytime soon. The repayment pause was most recently extended to September, but it will probably get pushed again. “It seems very unlikely that anyone is going to get a federal student-loan bill this calendar year,” says Mike Pierce, the executive director of the Student Borrower Protection Center. “The president doesn’t want to restart student-loan payments for 35 or 40 million people just weeks before the midterm elections.”

Along with another extension to the pause, Biden is expected to unveil more accessible paths to debt forgiveness. No one knows exactly what he’s cooking up, but there’s widespread speculation that he’ll take executive action to slash some amount from all student borrowers’ balances. “$10,000 is the number that’s being floated right now, but it’s not a done deal,” says Student Loan Hero’s Michael Kitchen. “Some Republicans in the Senate are already working on a bill that would prohibit the White House from forgiving student loans, and it may be challenged in the courts as well.” (This is why Biden originally wanted student-loan forgiveness to be bundled into a pandemic relief package passed by Congress, but lacked the votes to push it through.)

As for rumors that Biden will cancel debt entirely, or forgive up to $50,000? Don’t bet on it — he has never supported initiatives to do so, and he probably won’t start now. But he has supported broader access to targeted policies that do something similar — including the Public Service Loan Forgiveness program (or PSLF), which provides loan forgiveness to people who have worked in public-service jobs (like at schools, nonprofits, or in government) while making student-loan payments for at least ten years.

The original PSLF was a dumpster fire of confusing paperwork that rejected almost 98 percent of applicants, but Biden is patching up and expanding the system. Anyone who works in public service, or has in the past, is currently eligible to register (or reregister) for the program until October 6 and receive credit for payments that previously didn’t count. If you’re not sure whether you qualify, now is the time to look into it — particularly since you work at a university. (Pierce recommends the website for clear, step-by-step instructional videos to guide you through the process.)

If you’re hoping to buy a home, you will need to take your student loans into account as you start looking. There are many mortgage calculators that will help you figure out how much house you can afford based on your debt-to-income ratio. You should also see if you qualify for an income-driven repayment plan for your student loans (if you aren’t on one already), which calculates your monthly bills based on your discretionary income (i.e. whatever is left over after essential costs like mortgage payments). Pierce says that Biden’s future policies are likely to offer more opportunities for student borrowers to convert their repayment plans to this model.

You asked a great question about whether you should take advantage of this period of zero interest to pay down your loans more quickly. This used to be considered a good idea, if you could afford to do it. But at this point, Pierce says that it isn’t the best use of your money. “With rising inflation, I wouldn’t recommend that anyone pay down their balance right now,” he explains. “As long as the interest rate stays at zero, it’s better to pay off your loan with 2023 dollars than with 2022 dollars.” In other words, your $60,000 balance is already worth less than it was in 2020, and it will continue that trajectory as the value of the dollar keeps dropping.

In this landscape, waiting to pay your loans doesn’t cost you anything. And it will give you the added benefit of seeing what Biden decides to do about them. Don’t hold out hope that your debt will go away entirely, but there’s a good chance that this administration will provide strategies to make it less daunting — and less of an obstruction to your home-buying plans.

What Should I Be Doing About My Student Loans Right Now?