BLOOMINGTON, Ind — As Hoosiers wait to learn more details about President Joe Biden's federal student loan forgiveness plan, one expert at Indiana University is weighing in.
Phil Schuman has worked at IU for 11 years. He now serves as the executive director of financial wellness and education.
Schuman said the newly-announced $10,000-to-$20,000 in loan forgiveness could make a major difference for Hoosiers who qualify.
"If they are on a standard repayment plan, that's going to cut off potentially $100 a month in payments, and that's huge," Schuman said.
When it comes to extending the loan payment moratorium, Schuman said it was a relief for Hoosiers at the beginning of the coronavirus pandemic.
"For a lot of families, it was just like, 'This is one less thing we have to worry about right now,'" Schuman said.
Now, however, Schuman hopes Hoosiers will focus on four key steps to ensure they are on top of their student loans when the moratorium ends on Dec. 31, 2022.
Contact your loan servicer
Schuman said it is important for borrowers to contact their student loan servicer to understand their current local situation.
Find out how much your payments will be per month. Confirm what your loan's interest rate will be.
"In some cases, we are talking about people who have never had to make a loan payment before because they graduated within the start of the pandemic and the middle of the moratorium," Schuman said.
Make sure you have a plan in place to set up autopay so you don't miss any payments.
Reevaluate your budget
"The other thing you need to do if you haven't been making payments for the last two-and-a-half years, which most people have not, make sure that you can fit that into your budget," Schuman said.
Schuman also suggested letting this new plan serve as a starting block for family conversations.
"Let this serve as a new financial start," Schuman said.
Don't rely on refinancing
Schuman said refinancing can help some Hoosiers, but that process often means extending the life of the loan in exchange for a lower monthly payment
"If you need that lower monthly payment, by all means, explore refinancing," Schuman said.
Schuman reminds Hoosiers to weigh the options and consider the future when making a refinancing decision.
Start repayments now
"Despite the fact that loan payments are not required right now, it has never been cheaper to make those student loan payments because there's no interest accumulating," Schuman said.
Schuman suggests Hoosiers make at least the minimum payment on student loans every month, if they are able, despite the moratorium. He said this creates good habits, especially if you are concerned about your credit.
"Obviously, in an ideal world, if you have the ability to put a little bit more than those minimum payments, that's going to be helpful, both in saving you in the amount of interest you're going to pay in total over the course of time and also cut off some time," Schuman said.
In fact, Schuman estimated an extra $10 or $20 every month could save borrowers years off the back end of their loan.
"You could shave off one or two years of loan payments, which would be awesome," Schuman said.
If making monthly payments is not in the budget yet, Schuman suggests making "practice payments," like moving that money into a savings account.
"Build up your emergency savings," said Schuman. "Find a way to, sort of, better your future self."
For the latest updates on the federal student loan forgiveness plan, register here through the U.S. Department of Education.