Denied Student Loan Forgiveness? These Are the Best Ways to Adjust Your Budget

You may have set your savings goals around the expectation that your student debt will be forgiven. Yet with the uncertainty surrounding the federal loan forgiveness programs, it might be time to start thinking about how you’ll need to change your budget if you can no longer rely on debt cancellation. In order to make paying off your student debt in full more affordable (without sacrificing your existing financial goals), consider reducing your discretionary expenses, having a side gig, and applying for private debt consolidation.

Key Takeaways

• The Saving on a Valuable Education (SAVE) plan has been stalled in the courts and enrollees have been place in an administrative forbearance while the litigation is ongoing.
• With the incoming Trump administration having openly criticized its predecessor’s aggressive pursuit of student loan forgiveness, the current federal loan forgiveness landscape is likely to change.
• If you had planned on lower payments or eventual debt forgiveness, you might need to adjust your budget so you can afford your student loan payments while still saving for other goals.

Student Loan Forgiveness Going Forward

The Biden administration has been aggressive with its student loan forgiveness efforts, including a recent move to cancel $4.5 billion in student debt under Public Service Loan Forgiveness (PSLF), bringing the total number of public servants who have benefited from the program to more than 1 million.

Additionally, about 8 million people are enrolled in the Saving on a Valuable Education (SAVE) plan, and income-driven repayment (IRD) plan which is currently on hold pending litigation. The SAVE plan offers accelerated student loan forgiveness and makes payments more manageable for millions. For example, prior to enrollees being placed in an administrative forbearance, 4.5 million borrowers had a monthly payment of $0 under the plan, while another million had a payment of less than $100.

Although Donald Trump has been openly critical of President Joe Biden’s student debt relief efforts, he hasn’t explicitly stated what his plans are for federal programs already in effect. So it’s uncertain if borrowers who are counting on forgiveness under PSLF or other IDR plans can still do so.

As for the SAVE plan, its chances of survival under the Trump administration are likely slim. If litigation is still ongoing when he takes office, all the administration has to do is stop defending it in court. If it’s instead deemed legal, then Trump could follow the process to rescind the rule if he so chooses.

Note

During his first term as president, Trump pushed to have PSLF eliminated, but he was ultimately unsuccessful. The Department of Education’s FY2021 budget also proposed replacing the existing IDR plans with a new “Single IDR plan.” It’s unclear if he will attempt to do any of this again again during his second term.

Readjusting Your Budget for No Student Loan Forgiveness

Fortunately for the approximately 5 million borrowers who had their loans forgiven under the Biden administration, that debt cannot easily be reinstated. Additionally, even if PSLF and the other IDR plans are later eliminated, borrowers already pursuing forgiveness under these programs should still be able to do so. These programs would instead no longer be open to new enrollments.

If you’re currently on the SAVE plan or are otherwise counting on loan forgiveness and/or lower monthly payments, you may need to start planning on having to make larger payments until your loans are paid off in full. Here are some strategies you can use to adjust your budget accordingly:

• Cut back on unnecessary expenses: Review your current spending and identify nonessential costs that you can cut. The more money you can save early on, the more time it has to compound. This will allow you to grow your nest egg faster, making it possible to achieve your long-term saving goals sooner.
• Find ways to earn more money: Look for opportunities to increase your income. This could include applying for higher-paying jobs and/or getting a side gig. If you’re making more money each month, then that’s more you can put toward either your savings or repaying your student debt. By paying off more of the principal balance each month, you’ll pay less in interest over the life of your loans.
• Consider private student loan refinancing: Depending on your situation, it might make sense to refinance your student loan with a private lender. This would entail combining your outstanding loans into a new one with a single payment and potentially a lower interest rate and/or longer repayment term. However, before you apply, it might be worth waiting until you know more about what the incoming administration’s plans are. After all, once you refinance your federal loans, you lose access to federal benefits and protections.

The Bottom Line

There’s a reasonable chance that borrowers can no longer count on having their student loans forgiven or their payments reduced, at least under the incoming administration. As such, proactively adjusting your budget and exploring other options will put you in a better position to respond once Trump’s plans for student loan forgiveness become clearer.