Northwestern Mutual’s Planning & Progress Study reveals Americans with an advisor are much more confident about their financial future, yet only 37% work with one Advisors are Americans’ most trusted source for financial advice – more than loved ones, friends, news, FinTok and Reddit While older Americans want an advisor with sophisticated expertise, younger generations … [Read more…]
When employees feel financially secure, they can be more engaged, focused, productive, and loyal workers.
But simply offering a variety of financial benefits may not be enough to let all members of your workforce actually achieve financial wellness. And that’s especially true today, as employees navigate higher prices, elevated interest rates, and uneven wage growth.
So what are you doing right? And what can you improve?
Measuring financial well-being can help you answer those important questions.
Why Measure Financial Wellness and Why Now?
“A person’s financial well-being comes from their sense of financial security and freedom of choice – both in the present and when considering the future,” according to the Consumer Financial Protection Bureau .
In SoFi at Work’s Future of Workplace Financial Well-Being 2022 study, four out of 10 workers rated their financial well-being as average, poor, or very poor, and 75% currently have at least one source of financial stress. This was the case across all ages and incomes, and from varying industries. In fact, even higher earners were not immune. More than half (57%) of those making more than $150,000 cited at least one source of major financial stress, including worrying about inadequate retirement savings (40%), credit card debt (33%), and not having enough money for basics like food and rent or mortgage payments (29%).
How are your employees faring? Now may be a good time to measure the financial well-being in your workforce. Doing so can let you see firsthand the financial struggles your employees may be going through, how those struggles connect to business outcomes, and how your total rewards strategy can help.
How to Better Understand Your Unique Workforce
Measuring financial well-being will allow you to determine what segments of your workforce are struggling the most. It can also help you figure out what you can provide to help all your employees move forward. For many employers, that’s a two-part process.
1. Wage Assessment
Many employers start this process by assessing wages. No doubt you’ve compared your wage and salary decisions against competitors’ offerings, the local labor market, and industry averages. Indeed, you may be paying above the industry standard. But it’s important to remember that even above-standard wages don’t ensure financial wellness. Your workers may still be struggling.
With that in mind, you may want to compare your company’s wages against what constitutes a local living wage in the areas where your employees work. MIT’s Living Wage Calculator may be able to assist you with this. This tool helps determine how much money a person in a specific area needs to earn to cover basic expenses and how much that person has leftover for disposable income, including saving for the future. This may be a more realistic gauge for all levels of your workforce when assessing wages and determining financial well-being.
Recommended: Are Inflation and Financial Stress Affecting Your Employees’ Work Productivity?
2. Self-Assessment Survey
The next step is to gather input from your employees. If you haven’t already, you’ll want to design an online financial wellness assessment survey and encourage all employees to participate.
An effective self-assessment survey analyzes four pillars of financial security.
Spending: With these questions, you’ll find out how many employees are spending beyond their incomes either because they have expenses that are higher than their income or because of bad spending habits. By asking how long employees think their money would last if they suddenly lost their income, you’ll also collect data on how many of your employees are prepared for an emergency.
Saving: Retirement savings will likely dominate this section. How many employees are participating in your organization’s 401(k) or other retirement savings programs? How much of their annual income are they saving? Are they taking advantage of any match? Do they have an idea of how much they’ll need to save for retirement?
You’ll also want to find out how much your employees are saving for other goals such as emergency savings funds, college tuition, or a home down payment. This may be especially important if your benefits package includes other types of savings programs in addition to retirement.
Debt/Borrowing: Here’s where you want employees to fess up to credit card debt, mortgages, student debt (their own or their children’s), and personal loans. Assessing debt is a vital element for financial wellness. Some leverage, such as a mortgage or tuition loans, can be useful financial wellness tools. But credit card and other debt can be among the biggest obstacles to financial well-being.
Planning: Questions concerning employees’ purchase of life insurance and disability income insurance can paint a picture of how well-protected they are — an important element of financial wellness. This is a good place to ask if employees have set financial goals for the future and if they’ve worked with a financial counselor to do so. You’ll get a sense of what percentage of your employees are looking forward while still taking care of short-term needs/desires. Importantly, this will also let you know how much of your workforce is engaging with the financial planning tools you may be offering.
Depending on your workforce and your goals for the assessment, you may also want to include more subjective elements in your research, such as employee diaries or interviews. This can add human stories to the data collected and help inform new benefits going forward.
Sofi at Work offers a comprehensive benefits assessment tool that can be customized to your workforce.
Measuring Financial Wellness Empowers Employees
When employees take a smart, well-written, and well-designed assessment survey, they’re not just providing information to their bosses, they’re also thinking through their own financial wellness strategy.
Incorporating an interactive tool that gives immediate feedback can help employees identify their current status and balance their short- and long-term financial goals.
Providing a one-on-one meeting with a financial planner or other expert for each employee to have after completing the survey encourages your workers to take action with their newfound knowledge and further enhance their overall financial wellness. (It can also prompt more willingness to take the assessment among employees.)
Recommended: Supporting the Financial Well-Being of Newly Hired Recent Graduates
Measuring Provides a Compass for Your Financial Wellness Benefits
You’ll also want to analyze your own data on the benefits you’re currently providing to determine how well they’re contributing to employee financial wellness. A comprehensive look at who is using what benefits — including everything from health insurance to 401(k)s to paid parental leave and student loan assistance — and what employees are paying for or contributing to those benefits, can unlock details about access and participation among all levels of your workforce.
A benefit analysis combined with a wage assessment and employee financial wellness survey helps provide a deeper understanding of gaps in your total benefits strategy, areas where employee engagement and education are needed, and what new tools and programs might enhance financial well-being among your workers.
The Takeaway
Measuring your employees’ financial well-being now can lead to the design and implementation of benefits that will enhance financial wellness for all of your employees in the future.
SoFi at Work can help provide the wellness measuring tools you need to achieve that goal.
Photo credit: iStock/SDI Productions
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For information on licenses, see NMLS Consumer Access (www.nmlsconsumeraccess.org ). The Student Debt Navigator Tool and 529 Savings and Selection Tool are provided by SoFi Wealth LLC, an SEC-registered investment adviser. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal housing lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
From the economic impacts of the Covid-19 pandemic to record-high inflation to interest rate hikes from the Federal Reserve, the last several years have been plagued with financial unrest.
That may explain why only 48% of U.S. adults say they have enough emergency savings to cover at least three months’ worth of expenses, according to a new Bankrate survey. That’s nearly unchanged from 2022, when inflation reached a 40-year high.
For many Americans, this lack of reserves is a source of stress. The Bankrate survey found that a full 57% of U.S. adults are uncomfortable with the amount of emergency savings they currently have.
HR leaders have taken note. In fact, a growing number of employers now offer ways to help employees bolster their backup savings as part of their overall financial wellness benefits. If you’re interested in being one of them, read on. What follows are six moves that can help your organization build an emergency auto savings program that works best for your employees and your company.
1. Evaluate Employee Needs
The pandemic demonstrated that a huge percentage of employees in all salary ranges weren’t financially prepared for what was to become one of the most unprecedented periods of history.
This lack of preparedness added to an already stressful situation (working remotely, worries about health, child and elderly care needs, et cetera). Even as we move beyond the pandemic, however, employees are still on edge. SoFi at Work’s Future of Workplace Financial Well-Being 2022 study found that 75% of U.S. workers are facing at least one source of major financial stress. What’s more, employees are spending over nine hours per week while at work dealing with issues related to their financial situation (that adds up to a full 12 weeks of work each year).
Adding an emergency savings plan can help employees alleviate a significant amount of financial stress and provide a solution to the lack of short-term savings. This might be especially appealing for younger members of your workforce who may have fewer resources to rely on than older employees.
To determine how effective an auto savings program will be for each segment of your staff, you might think about creating a preliminary survey of employees to see what they feel they need most from a short-term savings plan.
Consider the following questions:
• Will you participate or do you feel there are already too many demands on your paycheck?
• Are you more likely to join if the company offers a match or initial contribution?
• Will you gravitate to emergency savings in lieu of long-term retirement savings?
• Do more accessible after-tax savings in a 401(k) account that can be used for emergencies appeal to you?
• Do you think a separate emergency auto account will help you think about saving for specific needs?
2. Check Out the Competition
A good next step is to determine what competitors are offering their existing talent and new recruits in the short-term financial wellness arena. For example, is an emergency auto savings program common among companies competing for your talent? Do most competitors offer a match or contribution to get employees, especially new hires, started?
Use the results of this data and the survey of employees to devise the most effective program for your employees (see below) and, importantly, to help convince team members and management why an emergency auto savings program is right for your company’s total rewards strategy.
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3. Determine the Impact of an Emergency Savings Program on Your Total Rewards Strategy
In recent years, you’ve likely had to shift or alter some of the components of your total rewards strategy, including compensation, benefits, flexibility, performance recognition, and career development. In light of those changes, where does an emergency auto savings benefit fit into the new reality? How does it fit with your HR financial wellness goals and business strategy?
The answer is likely very positive. It’s hard to imagine a total rewards strategy that doesn’t have a place for emergency auto savings, especially in light of recent times.
That said, it’s important that you structure and implement this benefit in a way that not only fills a need but enhances your overall strategy to retain, attract, and maximize talent. Be aware that when you add an important benefit such as emergency savings, you may shift the balance in your employees’ financial well-being focus from long-term to short-term goals.
As you implement the plan, you may need to realign your employee value proposition and total rewards strategy to encompass current and immediate needs while redoubling your efforts to educate and motivate employees on long-term financial wellness goals such as saving for retirement and healthcare costs.
4. Select the Solution and Roll Out Best for Your Goals
At SoFi at Work, we’ve found that selecting the right solution is critical to the utilization and effectiveness of every benefit in your total rewards strategy. Following the McKinsey framework can work well for all types of benefit rollouts, including emergency auto savings programs. These four principles can also help ensure benefit rollouts are integrated into your business strategy.
Choose Partners Wisely
Almost every benefit entails an outside partner to help administer and execute. Automatic emergency savings is no exception. Look for credible partners that can provide expert support and advice to a wide variety of employees with varying financial needs. For emergency savings, you’ll want to find a bank, credit union, or other financial institution that offers a low-cost, easy-to-use platform, like SoFi At Work’s Emergency Vault or open a Checking and Savings account with SoFi.
Focus on What’s Feasible
Make the program feasible to launch, which will help you make meaningful progress for employees in the short term as you lay down the foundation for long-term initiatives. This is key with emergency savings rollouts because by helping to relieve some short-term financial stress, you allow employees to focus on long-term goals sooner rather than later.
Make It Sustainable
Sustainable programs are able to flex with your business over time and during uncertain business conditions. Can your emergency auto-save program survive through the next period of uncertain business conditions? To answer this, your company may need to weigh questions such as whether the engagement benefits of a match outweigh the cost of sustaining the program? Is the plan flexible enough to undergo changes in the economy, your workforce, and your business strategy over time?
Get Personal
Enable personalization where you can. This way, employees are likely to feel emergency auto savings can help meet their unique needs. Offering a range of amounts that employees can automatically withdraw is the first step toward personalization. Providing calculators and other educational tools that help employees determine how much they need to save and how much they can afford to save is another personalization tactic.
Recommended: How Much Should Your Employees Have in Emergency Savings?
5. Use Communication Effectively
Top-notch communication techniques can help you drive participation and, importantly, change savings behavior in your workforce.
When asking for participation and engagement, lead with empathy. If there’s one thing the pandemic should have taught us, it’s that one size doesn’t fit all when it comes to supporting employees, who have had many different experiences and have many different needs.
Coordinating communications about the importance of emergency savings with other financial well-being education programs can help get the word out in an immediate and holistic way.
Clarity is Key
Accompany your rollout with extremely clear communications telling employees exactly what they can expect, including:
• How payroll deduction works
• How much — or how little — employees can save in the account
• Calculators, tools, and education efforts designed to help employees determine what they should/can save
• Thorough explanation of any company match offered — how much, how often, and portability
• Which bank, credit union, or other financial institution will run the account?
• How much, if any, interest will be earned
• How withdrawals can be made
• The fact that withdrawals can be made for any reason, no questions asked, with no penalties or tax consequences
• A reminder that if employees leave the company, they may easily transfer the account to their own savings
Meet Employees Where They Are
Make sure effective and thorough communications are available across platforms so you can keep up with your far-flung workforce. Simply posting on the company website and hoping people sign up won’t work, especially in these times when your remote workforce may be feeling more disconnected from corporate communications than ever.
In all communications, make sure you take a multi-platform, consumer-grade, mobile-native technology approach.
6. Take Ongoing Pulse Checks
To determine engagement and any ongoing tweaks that need to be made, you’ll want to establish metrics to measure success at least quarterly. Then you’ll want to benchmark those results against your competitors and national averages to add an “outside-in” perspective.
Solicit employee input on the success of the program in three ways — employee surveys, focus groups with critical talent segments, and analysis of recent departing employees and job candidates who declined an offer.
Metrics can also help you track how well the benefit is supporting business goals. For instance, a customer-service-oriented company may find a higher focus among phone reps and fewer errors when staff is less burdened with financial worries.
The Takeaway
These six concepts are designed to help you build a successful, engaging, and effective emergency auto savings plan. By reducing employee stress and increasing productivity and loyalty, you’ll help promote financial well-being in your workforce as well as enhance your company’s total rewards strategy and overall business objectives.
For more information on platforms that can help you set up an Emergency Savings Program, contact SoFi at Work.
Photo credit: iStock/alvarez
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For information on licenses, see NMLS Consumer Access (www.nmlsconsumeraccess.org ). The Student Debt Navigator Tool and 529 Savings and Selection Tool are provided by SoFi Wealth LLC, an SEC-registered investment adviser. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal housing lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Northwestern Mutual Study Finds Americans Who Carry Personal Debt Owe an Average of $21,800 Exclusive of Mortgages Overall average is $8,000 lower than it was in 2019, but 35% of Americans say they’re carrying close to or at their highest level of debt ever while 43% say their debt is close to or at a … [Read more…]
Financial wellness technology company EarnUp reached a new milestone last quarter, helping millions of Americans schedule mortgage, auto, and student loan payments through its Payday to Payday program and technology. The company says it processed more than 50 million payment transactions worth $43 billion in total as of Q1 2023.
The growth of EarnUp follows a surge in interest from companies seeking smart programs designed to help employees achieve a more well-rounded financial picture.
“We’re seeing an interesting trend gaining momentum among companies, who are now placing an emphasis on helping employees achieve a holistic sense of wellness: physical, mental, and now financial,” said Nadim Homsany, co-founder and CEO of EarnUp. “By offering tools that help employees achieve greater financial well-being, businesses are enhancing employee satisfaction and supporting their employee recruitment, DEI, and retention efforts.”
EarnUp powers financial wellness programs for employers, financial institutions, municipalities, and nonprofits. Lending and servicing organizations turn to EarnUp to reduce risk and streamline operations.
EarnUp’s suite of products include a smart financial wellness program with a digital user experience that enables borrowers to schedule loan payments to sync with their payday and accelerate payments to principal. This eliminates monthly payment shock and helps borrowers meet the obligations of their loans with less of a struggle.
Using EarnUp’s systems, the company says borrowers can reduce the likelihood of defaulting on a loan and paying late fees, according to the company, and can potentially pay off their mortgage and other loans years faster.
“EarnUp proves that in today’s challenging economy, people are interested in cutting-edge tech solutions that offer flexible payment strategies to eliminate undue stress and make budgeting easy,” said Homsany. “We now have had more than three million borrowers use the EarnUp platform and have seen borrowers reach out directly to sign up with us when their lender or servicer does not offer our services. In fact, more than a quarter of these direct requests are from customers returning to EarnUp following a refinance or purchase of a new home.”
EarnUp was recently recognized for the impact of its revolutionary technology, winning a HousingWire Tech100 award and a 2023 Innovator Award by Progress in Lending. It also made the Financial Technology Report’s Power 300 list, which tracks the most important companies in the financial technology sector, including PayPal, Mastercard, and Fiserv.
Investors in EarnUp include Bain Capital Ventures, SignalFire, Blumberg Capital, LendingTree, KeyBank, and Flourish Ventures. The company has earned recognition from Deloitte, JP Morgan Chase, Duke University, and Forbes Fintech 50.
This content was generated using AI, and was edited and fact-checked by HousingWire’s editors.
Financial wellness technology company EarnUp reached a new milestone last quarter, helping millions of Americans schedule mortgage, auto, and student loan payments through its Payday to Payday program and technology. The company says it processed more than 50 million payment transactions worth $43 billion in total as of Q1 2023.
The growth of EarnUp follows a surge in interest from companies seeking smart programs designed to help employees achieve a more well-rounded financial picture.
“We’re seeing an interesting trend gaining momentum among companies, who are now placing an emphasis on helping employees achieve a holistic sense of wellness: physical, mental, and now financial,” said Nadim Homsany, co-founder and CEO of EarnUp. “By offering tools that help employees achieve greater financial well-being, businesses are enhancing employee satisfaction and supporting their employee recruitment, DEI, and retention efforts.”
EarnUp powers financial wellness programs for employers, financial institutions, municipalities, and nonprofits. Lending and servicing organizations turn to EarnUp to reduce risk and streamline operations.
EarnUp’s suite of products include a smart financial wellness program with a digital user experience that enables borrowers to schedule loan payments to sync with their payday and accelerate payments to principal. This eliminates monthly payment shock and helps borrowers meet the obligations of their loans with less of a struggle.
Using EarnUp’s systems, the company says borrowers can reduce the likelihood of defaulting on a loan and paying late fees, according to the company, and can potentially pay off their mortgage and other loans years faster.
“EarnUp proves that in today’s challenging economy, people are interested in cutting-edge tech solutions that offer flexible payment strategies to eliminate undue stress and make budgeting easy,” said Homsany. “We now have had more than three million borrowers use the EarnUp platform and have seen borrowers reach out directly to sign up with us when their lender or servicer does not offer our services. In fact, more than a quarter of these direct requests are from customers returning to EarnUp following a refinance or purchase of a new home.”
EarnUp was recently recognized for the impact of its revolutionary technology, winning a HousingWire Tech100 award and a 2023 Innovator Award by Progress in Lending. It also made the Financial Technology Report’s Power 300 list, which tracks the most important companies in the financial technology sector, including PayPal, Mastercard, and Fiserv.
Investors in EarnUp include Bain Capital Ventures, SignalFire, Blumberg Capital, LendingTree, KeyBank, and Flourish Ventures. The company has earned recognition from Deloitte, JP Morgan Chase, Duke University, and Forbes Fintech 50.
This content was generated using AI, and was edited and fact-checked by HousingWire’s editors.
The Supreme Court has blocked President Joe Biden’s student loan debt relief plan, saying his administration lacked authorization under the HEROES Act to forgive up to $20,000 in student debt per borrower.
Some 43 million borrowers won’t see a cent of the debt cancellation promised by the White House last year. Under current guidance from the Education Department, borrowers must get ready to resume student loan payments starting in October on their full student loan balance.
On Friday afternoon, Biden announced that his administration was pursuing a student debt cancellation plan B. This route leans on a different legal avenue than the one struck down by the Supreme Court, and the process could take a year or longer. But a plan B remains far from guaranteed, and there is no timeline yet. Take steps to prepare for repayment now.
“Now that we have the decision, we can move forward,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. “There are a lot of borrowers who have been in limbo waiting to see what was going to happen.”
What did the Supreme Court decide?
The court ruled in two cases, and struck down the cancellation through the second case. All nine justices unanimously dismissed the first case, Department of Education v. Brown, because they found the plaintiffs had no standing to sue since they “fail to establish that any injury they suffer from not having their loans forgiven is fairly traceable to the Plan.” The two plaintiffs — individuals who claim they weren’t eligible for part or all of the relief — said they were harmed by not having the opportunity to participate in a notice-and-comment period for the program.
In the second case, Biden v. Nebraska, the court found that at least one plaintiff, the state of Missouri, had the right to sue. Six states sued jointly — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — alleging the relief would harm tax revenue in those states in addition to the finances of certain state-based loan agencies.
With standing established, a 6-3 majority of justices declared that Biden’s student debt cancellation plan, enacted under the 2003 HEROES Act, was unconstitutional. Chief Justice John Roberts delivered the opinion of the court, joined by Justices Clarence Thomas, Samuel Alito, Brett Kavanaugh and Amy Coney Barrett.
“The Secretary asserts that the HEROES Act grants him the authority to cancel $430 billion of student loan principal. It does not,” wrote Chief Justice John Roberts in the majority opinion. “We hold today that the Act allows the Secretary to ‘waive or modify’ existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, not to rewrite that statute from the ground up.”
Justice Elena Kagan penned the dissent, joined by fellow liberal justices Sonia Sotomayor and Ketanji Brown Jackson.
How did we get here and what’s next?
President Joe Biden’s student debt cancellation plan, first unveiled in August 2022, promised to erase up to $10,000 per individual borrower earning less than $125,000 annually or per married couple earning less than $250,000, and up to $20,000 for those who received a need-based Pell Grant while in college. The White House said that 90% of the relief would go to borrowers earning less than $75,000 per year.
Roughly 26 million borrowers applied or were automatically eligible for relief — and 16 million of them were approved by the Education Department and subsequently sent to loan servicers. The White House opened debt relief applications in October but closed them a month later as lawsuits swirled. The Supreme Court soon agreed to take on two of the lawsuits and held oral arguments for student debt cancellation on Feb. 28.
If you were among the millions of borrowers counting on this relief, you still have options to lower your monthly payments and even get some of your debt forgiven. Here’s what else borrowers need to know, and how to prepare for the impending end of forbearance.
What should I do now?
Get ready to make payments
Federal student loan payments are set to resume soon, with no possibility of further forbearance extensions. Interest will start accruing again on Sept. 1, and borrowers will have to resume monthly payments on their full student loan balance starting in October.
“Take your time, get very organized, identify where your loans are, what your repayment expectations are, sit down and actually create your own budget or spending plan,” says Stacey MacPhetres, senior director of education finance at EdAssist by Bright Horizons, an education and child care company. “And then take the time to figure out what you need to do.”
If you set money aside during the payment pause, consider making a lump sum student loan payment toward your balance before Sept. 1 to avoid racking up interest.
Find your servicer and set up payments
Check to see who your servicer is. Roughly 44% of borrowers now have a different federal student loan servicer than before the pandemic, according to the Consumer Financial Protection Bureau. You can identify your servicer by logging into your studentaid.gov account with your FSA ID or calling the Federal Student Aid Information Center at 800-433-3243.
Your servicer can help you do the following:
Check that your contact information is up to date.
Determine the amount you owe, the size of your monthly payments and when your first bill will be due.
Set up auto-pay. If you had this set up before forbearance, you’ll need to sign up again.
Expect long wait times when calling your servicer, cautions Scott Buchanan, executive director of the Student Loan Servicing Alliance. You may also be able to check some of this information on your servicer’s self-service online portal to avoid the customer service bottleneck.
Ask about income-driven repayment plans
If you anticipate not being able to make your student loan payment, your servicer can set you up with different payment plans and relief options. Consider asking about income-driven repayment (IDR) plans, which cap monthly bills at a set percentage of your income and erase remaining student debt after you make payments for a set number of years. If you earn below a certain income threshold or have lost your job entirely, you could pay as little as $0 per month under an IDR plan.
And a new IDR plan is in the pipeline that could cut monthly payments in half for most borrowers with undergraduate loans, and fast-track some with lower balances to forgiveness.
“I don’t know whether that plan will be ready to go in the fall,” Mayotte says. “But I know that there is a strong desire by the administration to get that plan, whatever it looks like, up and running sooner rather than later.”
If your student loans are in default
A temporary government program called Fresh Start could help if you had student loans in default before the payment pause. The program gives these borrowers the opportunity to re-enter repayment in good standing and access IDR plans and other relief.
Though borrowers will have one year to enroll in the Fresh Start program once forbearance officially ends this fall, they should apply as soon as possible, advises Michele Shepard, senior director of college affordability at The Institute for College Access & Success. The application is already open. You can sign up for the Fresh Start program today by going to myeddebt.ed.gov and logging in to your account, or calling the Federal Student Aid Office at 1-800-621-3115.
What if I can’t repay my student loans?
Shortly after the Supreme Court announcement on June 30, Biden announced a 12-month “on-ramp” repayment program. Borrowers who can’t make payments won’t fall into default until a year of missed payments, but interest will still accrue, so you should pay if you can.
Contact your servicer before you miss a payment. Ask about your options to lower or temporarily suspend payments through student loan deferment or forbearance. Start with an IDR plan, which sets payments at a portion of your income and extends your repayment term. These options can help keep you out of student loan delinquency (when a payment is late by as little as one day) and default (when a payment is at least 270 days late).
Don’t skip student loan payments. Defaulting on your loans can set off a devastating cascade of financial consequences, says Kristen Ahlenius, director of education at workplace financial wellness company Your Money Line. This can include credit score hits, seized paychecks and more.
Other ways to get help
Some nonprofit and legal organizations can offer student loan help as you navigate a return to payments. But be aware of scams, and avoid debt relief companies and anyone offering loan forgiveness. Only the government can forgive your student loans.
Here are some vetted student loan help resources to consider for information, advice or both; they are established organizations with verified histories:
“It feels like there’s a lot of fervor and panic right now,” MacPhetres says. “But there’s time, there’s opportunity, lots of repayment options and the servicers are there to help.”
If you’re considering refinancing some or all of your student loans, you may wonder what comes next on your financial to-do list.
On June 3, President Biden signed the debt ceiling bill into law, ending the three-year federal student payment pause. Payments are expected to resume in October.
Refinancing student loans can often result in a lower monthly student debt payment, either due to a lower interest rate, a longer loan term, or both. A lower monthly payment can be a big relief to borrowers who are still reeling financially from the effects of Covid-19 and higher inflation.
Lower payments can also free up some of your income for other key financial goals. That’s what we’ll look at here.
What Happens When You Refi Student Loans?
Understanding what happens after a refinance is key to planning your next steps.
As mentioned above, when you refinance, you may find a more favorable interest rate or more flexible loan terms that will help reduce your monthly payment. The SoFi Student Loan Refinancing Calculator can help determine how much refinancing could save you.
Keep in mind, when you refinance a federal student loan into a private loan, you lose the benefits and protections that come with a federal loan, like deferment and public service-based loan forgiveness (PSLF).
What Is Your Next Financial Goal?
As you consider refinancing, it’s a good idea to keep your other financial goals in mind. How can refinancing student debt — and perhaps lowering the percentage of income dedicated to repayment — help you achieve those goals? Take a look at the following scenarios that might apply to you.
1. Pay Down High Interest Debt
Once your student loan debt is under control, turn your attention to any high-interest debt you may be carrying on credit cards. There are two common ways people approach paying down debt. Which one you choose depends on your financial situation.
• The Debt Avalanche. With this system, you start by paying your highest interest rate card first, with payments above the monthly minimum. You do this while still keeping up with minimum payments on any other debt. When you eliminate your highest rate debt first, you can more quickly lower your overall debt picture.
• The Debt Snowball. In this scenario, you pay off your debt in order of the smallest to the largest balances, regardless of interest rate. This way you see some of your smallest debts paid off quickly and get a psychological boost from doing so. As you pay off each debt, you assign the amount of the payment you were making on that balance to the next debt. Your debt repayment builds momentum, known as “the snowball effect.”
Recommended: Which Debt to Pay Off First: Student Loan or Credit Card?
2. Start an Emergency Fund
Having money saved for unexpected expenses is a vital part of financial wellness.
But saving for emergencies is a challenge for many Americans. According to Bankrate’s 2023 annual emergency fund report, less than half (43%) of U.S. adults could pay for an unexpected emergency expense from their savings.
Starting or boosting your emergency fund with money saved on student loan payments is a great way to help keep your budget intact and stay out of debt.
How much should you save in your emergency fund? At least three to six months of living expenses (or take-home pay) is the rule of thumb. That way, if you lose your job, have an accident, or get sick, you’re likely to have enough to see you through until your situation improves.
3. Increase Retirement Contributions
Are you putting as much as you can away for retirement? Starting early can pay off big down the line, thanks to the magic of compound interest — and the fact that earnings grow tax-free in most retirement accounts such as IRAs and 401(k)s.
If your employer offers a matching contribution benefit, upping your game may be even more important. This is free money. Whenever possible, contribute the amount necessary to qualify for the full match so you take the best advantage of this key benefit.
4. Save for the Next Stage of Life
Life goes on well after student loans. Now with less student debt burden, you’re probably looking at what’s next. That may mean buying a car, saving for a down payment on a home, starting a family, or expanding a business.
Careful budgeting means you can put the difference between your old student loan payment and your new one toward other important life goals.
Once you establish the goal you’re saving for, consider opening a high-yield savings account dedicated to that purpose. You’ll earn interest while your nest egg accumulates but still have liquidity so your money is available when you’re ready to pursue your goal.
5. Invest
Starting an investment account outside of retirement savings can be an important financial goal in and of itself. The reason? Long-term stock market returns consistently outperform many other types of investments. Over the past decade through March 2022, the average annual return for the Standard & Poor’s 500 Stock Index was 14.5%.
Returns vary, of course, depending on the years you are invested and the economic environment. But over the long haul, investing in stocks early — even small amounts — can pay off in the future.
Mutual funds and exchange traded funds (ETFs) are two easy ways to start investing. A mutual fund is a collective investment which pools funds from many investors to invest in stocks, bonds or other securities. ETFs work much the same way but unlike mutual funds, ETFs can be bought and sold like a stock as the price goes up or down during the day.
How to Pay Off Student Loans Ahead of Schedule
As we’ve seen, a refinance can help lower your monthly payments and perhaps bring some much-needed wiggle room to the rest of your finances.
That may motivate you to keep the momentum going and look at ways you can repay your remaining student debt faster. Here are two tried and true strategies.
Pay More Than the Monthly Amount
Your monthly payment amount isn’t set in stone. You can always pay more than the minimum amount, and in most cases you probably should. Payments over the minimum monthly amount owed are applied directly to the principal. So even a little bit extra can lower the amount of your loan and help you save on interest over the life of the loan.
Recommended: Why Making Minimum Student Loan Payments Isn’t Enough
Dedicate a Windfall to Student Loans
Another strategy for paying student debt faster: Whenever you get a windfall, use some or all of it to make a lump sum payment toward your student loan principal. Think tax refunds, cash gifts, work bonuses, or income from a side gig or inheritance.
What to Avoid After Refinancing Student Loans
After refinancing student loans, be careful not to fall into a common trap: It’s called “lifestyle creep,” and it happens when you spend all of your discretionary income instead of directing some of it to financial goals.
To avoid creep, mindfully adjust your budget to account for any increase in income — such as lower student loan payments. That way the money will be put to good use instead of being frittered away.
Recommended: Living Below Your Means: Tips and Benefits
The Takeaway
Refinancing your student loans may help you lower your monthly payments, freeing up funds to put toward other financial goals. You might choose to pay down high-interest credit card debt, boost your emergency fund or retirement account, or even pay off your student loans faster. With the end of the federal student loan payment pause in sight, now may be a good time to consider refinancing all or part of your student debt.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Photo credit: iStock/RossHelen
SoFi Student Loan Refinance If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
It doesn’t matter how you slice it, parenting is an extremely difficult job. Which isn’t made any easier by having to discuss difficult topics with your children. Finances and financial hardship are just a couple of these topics that fall into that category. However, when you find ourselves in a state of financial hardship, that can be the best time to teach your children.
How you teach our children about financial hardship can look very different depending upon their ages and maturity level. So, before you begin giving an in-depth lesson about financial hardship to your children, please read on.
I get into the nitty-gritty of what sorts of lessons may be appropriate for each age level for the best understanding and long-term retention.
What’s Ahead:
Why should you talk to your children about financial hardship?
There are many different reasons why you could choose to discuss financial hardship with your children. But, the main reason should be to help educate them now for their potential maximum long term financial wellness. Since we, as parents, only want what’s best for our kids and for them to live a better life than we have had, teaching them about finances falls right in line with that ideology.
They’ll learn how finances affect credit scores
One of the first lessons you could teach your children about financial hardship is how it directly affects your credit score. While a lot of children have never even heard of a credit score yet, this would be a good place to begin. An easy way to break this down to your children is to explain:
A credit score is a rating of your responsibility with credit.
Your credit report begins the first time you take out any credit in your name (such as a credit card, loan, rent/mortgage, etc).
A credit report tracks when you make an on-time payment, a late payment, apply for new credit, overdraw your account, use too much of your revolving credit, etc.
The more mistakes you make with your credit, the lower your overall credit score.
The lower your credit score, the harder it is to get any future loans.
Once they grasp the concept of a credit report and credit score, then you can go on to explain how your financial hardship has affected your credit score. This is the point where you want to be as blatantly honest as possible. Since children learn best by example, your own credit score, and things that have affected it, will carry more weight with them.
Open up your latest credit report and go through everything line by line with them. If your children are much younger, they may not be able to grasp the more intricate details you want to convey, so stick with a broader description. But, if they are older, they will more than likely be able to understand the full credit report diagnosis.
While being this open and honest with your children may make you feel shameful, it shouldn’t. This is the prime opportunity for a true life lesson that directly affects their life right now.
They can understand how financial hardship directly affects day-to-day living
Most children won’t have a concept of how financial hardship can affect our day to day lives. But that is because they aren’t living in an adult world full of responsibility yet. Of course, you want them to be kids as long as they can and fully enjoy their childhood. But, it’s also a great time to teach them about financial consequences while the stakes aren’t as high.
Since most children want everything right away, this is a good time to dive into this lesson with them. Explain to your children that most of us don’t get to have everything we want as soon as we want it because things cost money. And if you’re in a position of financial hardship, you probably don’t have any to spare. This can lead to a great discussion about disposable income, and lack thereof.
When you are living in a state of financial hardship, you are playing a juggling game every day. A great way to explain this to your children is to show them exactly how much you make for the month. Then, break down your monthly living expenses for them. These should include:
Mortgage or rent.
Homeowner’s or renter’s insurance.
Car payment(s).
Car insurance.
Electricity.
Water.
Trash.
Gas.
Phone.
Internet.
Gas.
Groceries.
Streaming services (if any).
No matter what their age, you can help them do the basic addition and subtraction math to figure out how much money is left, if any. Next, you should go through any other loan or credit card payments you have to make each month also. Once they see these numbers, they should be able to understand that there is simply not enough money to cover everything.
After you have laid everything out for them in this way, then it’s time to explain how all of these bills happened. You should give them as much detail as they can handle, based on age and maturity level. This way they can see how easily a situation like this can, and does, occur.
They’ll know how financial hardship affects relationships
If you are in a position of financial hardship, it is likely that this has affected a lot of your personal relationships. When you find ourselves in this position, you don’t always like to talk about it with others. So, instead, you avoid the topic and pretend like everything is just fine.
But, you know that you can’t do a lot of the things with our friends and family that you may have previously been able to. Which, therefore, begins to affect our relationships. I can tell you that when I was going through my own period of financial hardship, most of my friends didn’t understand. They wanted me to go meet them for coffee, dinner, or a drink to socialize. But I didn’t even have enough money to pay for the gas to drive there.
Sometimes friends and family will foot the bill for you just so you can join them. But, for a lot of us (me included), that creates a feeling of guilt during the whole experience. So, it’s just easier to turn down the offer instead. But, that means weakening the bonds of your relationship because you are distancing yourself.
It can be a slippery slope which could potentially lead to a further downward spiral. Therefore, as painful as it may be, it’s much better to be as honest with your friends and family as you can be about your financial hardship situation. Instead, give alternatives to spend time together that don’t cost any extra money. Some great ideas include:
Hiking.
Watching movies/documentaries at home.
Game night.
Swimming in a local lake or river.
Having a potluck meal at your house.
Listening to music and catching up at your house.
Whatever you choose to do, get creative, and just focus on keeping your relationship bonds strong. The message you should try to convey to your children is that a good support system can really help you get through the financial hardship.
When should you talk to your children about financial hardship?
There may not be a right time to discuss financial hardship with your children. But, the best time to begin discussing it is as soon as possible. Before you approach the subject with them, though, you need to make sure you are in the right state of mind. Figure out what you want to convey to your children before you ever begin a conversation about your finances.
It might be best to write down some bullet points prior to your first conversation. Tell your children that you want to schedule a meeting with them at a certain place and time. Choose a place that is comfortable for all of you, since this will likely be a longer conversation.
When you begin the conversation, you will need to be as honest with them about your situation as possible. After all, children are like little sponges and will be eager to soak up the information you are doling out to them. Make sure to convey that your financial situation is in no way, shape or form a direct result of them. Because children will naturally take on responsibility and blame that doesn’t actually belong to them. So you might need to reiterate this point, depending upon your child’s personality.
Also, explain that you aren’t asking for their help with solving the financial hardship issue. You just want to use your current situation as a learning tool for them so that they don’t end up in the same place you have found yourself. This is the primary objective for sharing all of this in-depth information with your children about your financial hardship.
And the earlier you can do it, the better. Because then they can go along for the ride and see how you ultimately get yourself out of the situation.
How should you talk to your children in age-appropriate ways about financial hardship?
With different ages and stages of childhood come different financial lessons that will work better. After all, trying to teach a preschooler about investing may be a bit outside their capacity. Therefore, how you explain different topics regarding financial hardship should have a direct correlation to the ages of your children.
Toddler
Having a toddler can be one of the most challenging time periods as a parent. They are testing all of the boundaries and want to be completely autonomous. It is fantastic to watch their independence and confidence grow and see how fast they learn. But they need to learn smaller lessons in order to retain the information for the long-term.
This means that there are some great smaller, more basic lessons you can begin to work with them on now. Some of the best ways to teach your toddler about finances and financial hardship can include:
Saving their money in a piggy bank.
Help them count their money every month so they can see how it grows when they leave it alone.
Taking them shopping with you and having them use their own money to buy something.
Lead by example by paying with cash whenever they are around so they can grasp the monetary exchange.
These options may not seem like a lot, especially with regards to financial hardship. But, these are the building blocks of their financial education.
Preschooler
Preschoolers have begun to grasp more complex concepts than they did when they were toddlers. If you didn’t start teaching them about money when they were toddlers, I would suggest starting with the aforementioned lessons first.
However, if you started with your children when they were toddlers, now it is time to build upon those lessons. Some great ways to do this can be:
Have them split their piggy bank up into three (spend, save, donate) different piggy banks.
Explain the importance of saving and donating vs. spending and have your child figure out how much to put in each category based on the level of importance to them.
Take your children grocery shopping and have them help you determine the best values.
Have your kids help you count out the money and pay the cashier for groceries.
By adding on to previous financial lessons you have already taught them, you are just solidifying the concepts for them. And this will definitely help with mirroring behavior and long-term retention.
School-aged
If you have been involving your school-aged child in all of these lessons since they were a toddler, then kudos to you! It can be extremely difficult to teach toddlers and preschoolers because of their shorter attention spans. But it gets a bit easier once your children are school-aged.
They have a higher capacity for reasoning and problem-solving now. So you can throw some higher-level financial concepts at them. Some of these can include:
Waiting to make any purchases for at least 24 hours.
Make them use a percentage of their own money to purchase any items they want.
Explain about opportunity costs and how if they purchase an item they want now, they might not have the money needed for another item in the future.
Pay them for work they have actually done (chores), as opposed to money for nothing (allowance).
At this age, it is good to have them more involved with their own purchases. This way they feel it more deeply and have a more solid idea of how much things actually cost. It also reiterates to them that there is no magic money tree growing in the yard that will fund their every wish and dream. Therefore, it brings the concept of money and how we use it in today’s world into a more realistic space.
Preteen
Preteens are at the age where they have begun to know everything! While it’s great that they are so much more cognizant of how the world around them works, sometimes you have to bring them back down to reality.
At this age, I like to get each child a checking account that I am a co-signer on. This way they can begin to spend only their own money on things they want. However, I don’t give them access to see what is in their account. They also have to ask permission to make any purchases ahead of time. If they don’t, I revoke the access temporarily.
Besides getting your preteen a checking account, here are a few other great options to help teach them about finances:
Have them start putting a larger chunk of money away in savings for larger items they may want in the future.
Dive deep into the compound interest topic. (I wish my parents had done this for me because it would have changed how I looked at money when I got my first real job).
Since they are at the point now where they have gotten into more difficult mathematical equations, compounding should be an easy concept for them to grasp. In fact, we started talking about it with some of our kids when they were a little bit younger, and they still seemed to get it. If you are still having a difficult time explaining here, here is a great compound interest calculator that you can play on with your kids. It has really made a huge difference in our children’s financial mindset!
Teenager
If you thought your preteen knew everything, then your teenager is a guru. They have surpassed your intelligence level, or so they think, and wonder how you have made it this far. While they are close to being out in the big, bad world all on their own, they still have a thing or two to learn.
The best lessons you can give them now are about how the bigger things in life can really affect them financially. Some of these can include:
These lessons are going to take a lot more work on your end because they are more in-depth concepts. But, these will be some of the final financial lessons you leave your children with before they fly the coop, so you want them to be good.
Important budgeting tools to help explain financial hardship
One of the first places to start when dealing with financial hardship is a budget. Not everybody has one or wants to stick with one. But I have found that continually having a budget, and visiting it weekly, has really helped us stay on track. In fact, creating a budget and sticking to it helped us get out of debt much faster than we otherwise thought possible. So I am a huge proponent of a budget.
No matter which budget you decide to use, just make sure that it works for you and your lifestyle. If you don’t have a budget yet, then this might be a great time to include your children in the process, depending upon their ages. And if you already have one, then going through your budget with them is a great built-in teachable moment.
Savings tools to include in your explanation of finances
Another topic that simply must be broached with your child is saving their money. This can be one of the most difficult topics to discuss because most kids want to spend every dime they have. Expressing just how important saving their money for a rainy day is might be more difficult to get across to them.
Using yourself and your current financial hardship situation as an example is the best way to get this message across. Explain why not having a decent emergency fund can only hinder them financially in the future.
Easy investment tools to explain getting back on track with your finances
Teaching your children about investing while they are young is the best time to introduce them to the subject. After all, we all want to retire someday. And for most of us, the sooner the better.
While investing may be near impossible when you are in a state of financial hardship, it’s still a good thing to have in the back of your mind. Because getting to the point where you can invest in your future can help possibly prevent any future financial hardship situations from occurring. Investing is much easier with today’s app friendly age also.
A couple of great places to start an investment portfolio are M1 and Betterment. Both of these sites have multiple account type options, such as:
Individual taxable account.
Roth IRA.
SEP.
Traditional IRA.
Trust investments.
If your child is at working age and making some of their own money, then opening a Roth IRA account may be the best option. No matter which accounts they, and you, choose to open, these accounts can only help solidify future financial wellness.
Summary
Overall, explaining financial hardship can be a very sticky subject to tackle with your child. But, imparting our financial mistakes and wisdom onto our children is one of our most important jobs. So, include your children in your discussions about your financial hardship. Explain how you got there and how you plan to get out.
At some point, our kids will become adults and have plenty of opportunities to make their own mistakes. But, it would be great if they didn’t relive our mistakes. If we can help them live more financially stable lives than we have, then we have done our parenting job well.
After years of speculation and debates, President Biden finally announced that he’d be fulfilling a campaign promise to cancel some student debt.
The plan could bring relief to over 43 million borrowers with an average $30,000 debt outstanding.
So, do you qualify for Biden’s student loan forgiveness plan? How much of your debt will be forgiven? How will it affect your monthly payments, and what relief is there for future borrowers?
Here’s everything you need to know about Biden’s student loan forgiveness plan!
What’s Ahead:
Biden’s student loan forgiveness plan
On Aug. 24, President Biden announced that the federal government would forgive $10,000 in student loan debt for qualified borrowers making under $125,000 as a single filer or $250,000 as a household.
If you received a Pell Grant, you could qualify for an extra $10,000 in forgiveness.
Biden also proposed a new income-driven repayment (IDR) plan that would lower payments on undergraduate loans from 10% or 15% of your monthly discretionary income to just 5%.
Overall, the Biden administration estimates the new plan will provide relief for up to 43 million borrowers. Here’s the full White House Fact Sheet.
December 2022 update
Now, if you were looking forward to having up to $20,000 of your student loans forgiven, you might feel deflated by some recent, grim-sounding headlines.
Headlines featuring words like “Lawsuit,” “Challenged,” and “Frozen.”
I was actually speaking to a group of college students about financial wellness right as the program was blocked. I was explaining how the program was in legal jeopardy, and that anyone interested should apply ASAP when a student politely raised his hand and said:
“Uh… the site is down right now.”
TL;DR: What happened?
The program is facing two high-profile lawsuits: one from six Republican-led states, and one from a pair of borrowers who didn’t qualify for full relief. As a result, student loan relief can’t proceed until both suits play out in court sometime next year.
In other words, it’s in limbo and nobody has received relief yet.
Who’s trying to block student loan forgiveness, and why?
Well, as you might recall, not everyone was happy to hear about Biden’s program. Some called it a Band-Aid on a bigger problem, and others said it was straight up unlawful.
But most of the students I spoke with didn’t care too much for the overarching politics. I’ll just take my $10k, thanks. They were among the 26 million who applied for relief before the site went down, 16 million of which had already been approved by the Biden administration.
Unfortunately, before the $400 billion relief train could arrive at the station, a federal judge based in Texas yanked on the brakes. U.S. District Judge Mark Pittman struck the program down on Nov. 10, barring its implementation and forcing an indefinite hold on new applications.
Judge Pittman was acting on behalf of a lawsuit filed by conservative interest group the Job Creators Network Foundation, which itself wrote up the suit based on complaints filed by two borrowers. One didn’t qualify for relief because her loans were privately held, and the other complained he was only eligible for $10,000 because he wasn’t a Pell Grant recipient.
The lawsuit alleges that the program unlawfully skipped right over the step where citizens provide feedback on proposed federal programs — a rule made sacred by the Administrative Procedure Act.
“This ruling protects the rule of law which requires all Americans to have their voices heard by their federal government,” said Elaine Parker, president of Job Creators Network Foundation.
“The program is thus an unconstitutional exercise of Congress’s legislative power and must be vacated,” wrote Judge Pittman.
So that’s big lawsuit/roadblock no. 1.
Big lawsuit/roadblock no. 2 comes from six whole states. GOP-led Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina collectively filed a lawsuit challenging Biden’s authority to cancel student debt. Technically their complaint preceded Judge Pittman’s, but wasn’t granted a preliminary injunction (read: taken super seriously) until Nov. 14.
Though both lawsuits have the same throughline — that this is an overreach of executive power — the Republican-led states also add that this high amount of debt relief could negatively impact tax revenue.
This echoes several earlier lawsuits that were eventually thrown out. One came from a Wisconsin taxpayers group alleging that this would dip too far into the U.S. Treasury. Another came from Arizona Attorney General Mark Brnovich, who asserted that the plan would hurt recruitment of public sector employees by erasing incentives provided by Public Service Loan Forgiveness.
In short, a lotta folks are trying to block Biden’s student loan forgiveness program. And while most lawsuits have fizzled out in the lower courts, the two big suits described above made it through the gauntlet and pose a real threat to the program’s survival.
So what happens now?
Well, it could take weeks or months for these two big lawsuits to play out in court. And until then, the 8th U.S. Circuit Court of Appeals has blocked the Biden Administration from providing a penny of debt relief — or even taking new applications.
That said, the program isn’t canceled; it’s just on pause until litigation gets resolved. It’s entirely possible that these suits will fizzle out just like the others, and that you’ll get your $10k or $20k by mid-2023.
It’s also possible that these efforts will succeed and student loan forgiveness will be blocked indefinitely. Or that the lawsuits will be drawn out until 2024.
Point being, hope for the best and plan for the worst.
What about repayment extensions?
If there’s a silver lining for borrowers, it’s that the program’s legal challenges gave Biden the opening to further extend the pause on repayments.
On Nov. 28, he announced that federal student loan payments would be paused until 60 days after the lawsuits are resolved. They were previously scheduled to resume on Jan. 1.
As a borrower, what steps should you take as you wait?
Here are four steps every borrower can take as you wait for all this to be resolved:
Read the rest of this guide — As of now, the terms of the original plan are exactly the same. So be sure to educate yourself on whether or not you qualify and for how much.
Subscribe to updates — The U.S. Department of Education has two newsletters I’d recommend: Federal Student Loan Borrower Updates and Top News from the Department. They’re the top two on this list.
Don’t plan on receiving relief — There’s nothing wrong with crossing your fingers, but don’t plan your 2023 budget around debt relief since it isn’t guaranteed.
Shrink your debt in other ways — Check out our guide on how to manage student loan debt for ways to manage your debt and pay it off faster.
Who exactly qualifies?
Here are the qualifications for receiving $10,000 in student loan forgiveness:
You’re a single filer with an adjusted gross income of under $125,000 on either your 2020 or 2021 tax returns. For joint filers or heads of household, that number rises to $250,000.
You took out a federal student loan, including PLUS loans. Loans taken out by you or your parents on your behalf both qualify.
You took out your loan prior to June 30, 2022.
If you meet the above requirements and you received a Pell Grant, you may qualify for an additional $10,000 in relief for a total of $20,000.
Which loan types qualify?
Most types of federal student loan debt qualify. That includes:
Direct loans (subsidized and unsubsidized)
Direct PLUS loans, including Grad Plus and Parent Plus loans
Direct consolidation loans
Some (but not all) Federal Family Education Loans
The trick with Federal Family Education Loans (FFEL) is that some are held by private companies. If your FFEL qualified for the payment pause in 2020, it may qualify for forgiveness. If it didn’t qualify for the payment pause, that’s a sign that it’s privately held and won’t immediately qualify for the $10,000.
That being said, there’s still hope. The Washington Post reports that the Biden Administration is working with private FFEL lenders to see if they can fold their borrowers into the relief program.
Will I get the full amount? Or is there a sliding scale?
If you meet the above qualifications, you will get the full $10,000 in forgiveness ($20,000 for a Pell Grant).
There is no sliding scale based on income, or anything like that.
What steps do I have to take? Or is it automatic?
It depends.
If the Department of Education already has your income information from 2020 and/or 2021, you’ll automatically qualify. According to the Biden administration, they already have income information from 8 million out of 43 million qualified relief candidates.
If you qualify but you’re not sure if the DoE has your income information, you’ll soon be able to fill out a form that certifies your qualification.
The form is scheduled to release sometime between now and when the repayment freeze expires. You can subscribe here for Department of Education updates — be sure to check the first box for Federal Student Loan Borrower Updates.
You’ll also want to double-check that your loan servicer has your latest contact and address information. If you’re not sure who your loan servicer is, check here on the DoE’s official page.
How will student loan forgiveness affect my remaining monthly payments?
It kind of depends on how your loan servicer wants to interpret the loan forgiveness program. At the time of this writing, we’re not sure if the bulk of them will choose to:
Lower the amount you have to pay each month, or
Keep your monthly payments the same and shorten your term.
They may end up letting borrowers choose, but again, who knows? The New York Times asked Scott Buchanan, executive director of Student Loan Servicing Alliance, what borrowers should expect. His response was basically:
“¯_(ツ)_/¯ “
We do know that if you’re on an income-driven repayment (IDR) plan, any amount of forgiveness you receive probably won’t shrink your monthly payments since your payments are income-based, not balance-based.
That being said, Biden has big changes in store for IDR plans, too.
What about the updates to the income-driven repayment (IDR) plan?
If you’re on an IDR plan like PAYE, REPAYE, ICR, etc., you’re probably used to paying 10%, 15%, or even 20% of your discretionary monthly income towards your student loan balance.
While capping your required payments is helpful, even 10% can be pretty steep for low-income borrowers struggling to make ends meet as the cost of living rises.
Read more: How little can you live on in 2022?
That’s why the Biden administration has proposed a new rule that would cap monthly payments at 5% of your monthly discretionary income versus 10% or higher. The new rule would also raise the amount considered “non-discretionary” and forgive balances after 10 years of payments instead of 20.
The rule is expected to take effect in summer 2023.
Will I have to pay taxes on my student loan forgiveness?
Nope! Congress eliminated taxes on loan forgiveness through 2025.
Will the student loan repayment freeze be extended (again)?
Yep!
The student loan repayment freeze that began in 2020 was originally slated to expire on Aug. 31, 2022, then bumped to Dec. 31, 2022, has now been extended again pending the lawsuits.
Payments are paused until 60 days after the lawsuits are resolved. If that hasn’t happened by June 30, 2023, payments will resume on Sept. 1, 2023.
Should I hold off on refinancing until forgiveness kicks in?
Oh, most definitely.
Generally speaking, refinancing your federal student loans with a private lender only makes sense when you qualify for a much lower interest rate than you’re currently paying, as is often the case when your credit score rises.
But private loans often lack some or all of the protections of federal loans, such as payment freezes and income-driven repayment plans. That’s why refinancing federal student loans with a private lender should be a careful, calculated decision.
Check out our full guide on student loan refinance options for more info.
And even if you qualify for a lower interest rate — say, 3% versus 7% — that’s not enough to offset $10,000 in instant forgiveness. Wait for the Department of Education to knock $10k off your principal, and then reassess your options.
I paid off my loans during the freeze. Is there any kind of relief for me?
Actually, yes!
If you:
Meet the qualifications for loan forgiveness, and
Made student loan payments after March 13, 2020,
you’re actually eligible for a refund! The Department of Education advises that you contact your loan servicer to request your refund and get the ball rolling.
I haven’t applied for student loans yet. Is there any relief for future borrowers?
There’s no direct monetary relief for borrowers who took out loans after June 30, 2022, or plan to in the future. That means if you borrow $50,000 this fall, you won’t automatically get a $10,000 discount on your principal.
That being said, the Biden administration claims that three new policy adjustments can improve the outlook for future borrowers:
Setting an income-driven repayment plan at 5% instead of the standard 10% to cut required monthly payments in half
Fixing the “broken” Public Service Loan Forgiveness program to broaden who qualifies for forgiveness, and overall streamline a complex and messy system
“Holding schools accountable when they hike up prices,” thereby strengthening overall accountability “to ensure student borrowers get value for their college costs”
For more on how to make college more affordable, check out:
The bottom line
If Biden’s plan means you’re suddenly debt-free, you might start having a little extra capital at the end of the month to invest.
So where should you put it?
Well, you’re definitely in the right place to find out! Check out: