The pandemic has brought unique challenges for younger generations — virtual college graduations, canceled spring breaks, postponed weddings, and a rapidly changing job market. Despite these setbacks, you may have noticed a little wiggle room in your budget for things like Ravens games or a long weekend down the ocean. That’s because, for the last two years, the federal government paused student loan payments to provide Americans some financial relief.
The student loan payment pause has been extended one last time to December 31, 2022. Along with one final extension, some borrowers may receive up to $20,000 in student loan forgiveness. With these changes, you may be wondering, how much debt forgiveness do you qualify for? As a Maryland resident, how much will you have to pay? Should you start budgeting?
If you have student loan debt, we can help you make sense of your options before student loan repayment resumes.
Who is eligible for student loan forgiveness?
You’ve probably already heard about the new Student Loan Debt Plan and seen plenty of think pieces about the impact of student loan forgiveness on the economy, inflation and borrowers who’ve already paid off their debts. But we’re not here to tell you what we think about student loan forgiveness. We’re just here to offer guidance on what to do in light of these new developments.
Here is who’s eligible for student loan forgiveness:
- Only people earning less than $125,000 a year are eligible
- Borrowers who received Pell Grants will get $20,000 in forgiveness
- Borrowers without Pell Grants will get $10,000 in forgiveness
That’s not the only assistance outlined in this new plan. The plan also seeks to make payments more manageable for borrowers. Even if you’re not eligible for $20,000 in student loan forgiveness, you may still benefit from the plan.
How the Student Loan Debt Plan impacts payments:
- Cap payments at 5% of your monthly income — down from 10%
- Increase what is considered non-discretionary income to support low-income workers
- Forgive balances of $12,000 or less after 10 years — down from 20 years
- Cover unpaid interest, so borrowers balances do not grow
The impact of student debt in Maryland
If student loan payments resume, Millennials and Gen Zers in Maryland will feel the impacts more intensely than in any other state in the country. That’s because the average Maryland borrower has just under $40,000 in student loan debt according to Student Loan Hero. In fact, Washington, D.C. is the only place with more student loan debt than Maryland.
Inflation will impact interest rates
First, your landlord raised the rent. Then, gas prices skyrocketed. Now, your regular trip to the grocery store seems to get more expensive every week. If it seems like your paycheck is evaporating faster than ever, it probably is. And inflation is to blame.
You’ve likely heard that inflation is driving a rapid increase in interest rates on home loans. That may even be one of the reasons you don’t feel ready to buy a home yet. But what do these ever-changing percentages have to do with your student loans? Throughout the student loan repayment pause, borrowers haven’t had to worry about interest rates at all because the pause also included 0% interest.
Currently, interest rates on new student loans sit just below 5%. With Marylanders holding more debt than borrowers in other states, rising interest rates could hit you harder. Should the student loan repayment pause end, you might find yourself struggling to pay down debt faster than it accrues interest.
Don’t go on a spending spree just yet…
Just like any major piece of legislation, student loan forgiveness has plenty of opponents. Could they impact the future of the Student Loan Debt Plan? Many opponents of the decision argue that presidents do not have the authority to provide student loan forgiveness.
As a result, it’s possible the plan could result in a court case over whether the decision is valid. If that were to happen, borrowers would likely be left in the dark until the case is settled. Whether the decisions will end up in court is still up in the air. And what would happen next if the decision were to be struck down is even more uncertain.
So what can you do in the meantime? Stay cautious with your spending and make the necessary payments when they return in 2023.
Here are steps you can take to ensure you’re prepared to start making payments come 2023.
Find out how much you owe and when
At SECU, we make it easy for you to prepare for your next payment. If the student loan repayment pause ends, we’ll send a notification by mail including everything you need to know about your payment schedule and how much you’ll owe.
Not sure you can take on these payments again with your current budget? Seek guidance through our free financial wellness checkups. Our highly trained counselors will work with you to understand your unique situation and offer support on how to manage your finances.
Update your contact information
Don’t risk missing any important updates about your student loan payments. Log in to your SECU account to verify we have the correct mailing address and phone number.
Seek student loan support with SECU
We’re here for whatever you need–including a better rate on your student loans. When refinancing your student loans through SECU, you can reduce the number of bills you have to pay while also securing a more affordable monthly payment.
Refinancing can even improve your chances of securing loans for other major investments like a new car or a mortgage, getting you one step closer to paying off your student debt and achieving important post-grad milestones. Learn more about how SECU makes it easier for you to repay your student loans.