Many students are still processing this week’s announcement that the federal government will forgive portions of student loan debts, but experts are offering their tips on what to do with the money.
Kenisha Huey, a student at the University of Illinois at Chicago, is one of thousands of students across the country that will see a portion of her loans forgiven.
“Yes, I will be impacted,” she said. “I have student loans and I have had Pell grants as well.”
Under the policy, single individuals who earn less than $125,000 per year, or families who earn less than $250,000 per year, will be eligible to have $10,000 of student loan debt forgiven. Students who received Pell Grants are eligible for another $10,000 in relief, according to the policy.
Only loans originated by the federal government will be eligible.
Additional changes to current policy, including a reduction in the amount of discretionary income that borrowers must pay back on a monthly basis, are also being implemented by the Biden administration.
Phillip Shaw, who works at Chicago’s Goldstone Financial Group, says that forgiving some student loan debt is critical to free up money for borrowers for other uses.
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“This is important because student loans have been pulling back a lot of Americans from accomplishing other things in their financial lives,” he said. “Whether that has been starting a family, whether that has been purchasing their first home, starting a business or even just feeling comfortable in their day-to-day financial life.”
Shaw says that students only had to have originated their loans prior to July 2022 in order to qualify for the program, and that current students are still eligible.
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He also advises that borrowers should check with their loan servicers to ensure that their contact information is up to date, and more importantly, not to treat the loan forgiveness strictly as free cash.
“If you are eliminating a cost in your monthly budget, my encouragement is not to turn that into additional spending,” he said. “Don’t take your student loan payment and make it go toward dinners at a restaurant. Turn around and make that into savings for your future.”
Estimates say that the forgiveness program could cost the government hundreds of billions of dollars in coming years, but Huey hopes that similar debt-reduction policies could be implemented.
“I will be getting the forgiveness, but I feel that middle-class people who are in debt will need more than student loan forgiveness,” she said.
