student loan forgiveness 101
the nitty gritty & the big picture
I can’t believe we live in a world where the aurora borealis exists and we have to talk about… predatory student loans ¯\_(ツ)_/¯
Yesterday, Joe-Joe finally announced that he is granting $10,000 in student loan forgiveness — $20,000 for some borrowers — and he is extending the federal student loan payment pause one last time until December 31, 2022.
My colleagues and I have been covering this news nonstop since yesterday, so let me tell you everything I know so far.
Thanks for reading Queer & Trans Wealth! Subscribe for free to receive new posts and support my work.
Here’s the nitty gritty:
You qualify for $10,000 in federal student loan forgiveness if you’re an individual who makes less than $125,000 a year, or if your family makes less than $250,000 a year.
If you received a Pell Grant while you were in school, you qualify for $20,000 in student loan forgiveness with the same income restrictions.
Student loan payments will resume starting January 1, 2023, which means we have 4 months to prepare for what’ll happen then. More on that later.
When payments do return, your monthly payments may get cut in half under an Income-Driven Repayment (IDR) Plan.
Before the pandemic, your monthly payment under an IDR plan is capped at 10% of your discretionary income.
Your discretionary income = your paycheck after taxes - your fixed living expenses, like rent and other debts.
Joe-Joe’s forgiveness plan caps IDR monthly payments at 5% of your discretionary income.
At the moment, it’s unclear whether graduate loans and Parent PLUS loans are included in Joe-Joe’s forgiveness plan.
At some point, you’ll have to verify your income to get forgiveness, so get your tax returns and pay stubs ready.
The federal student aid website says all payments made during the pandemic (including auto payments) can be refunded.
Here’s the big picture:
$10,000 is simply not enough. The average borrower owes $28,950. Black families borrow at least $7,000 more on average, while the most economically disadvantaged families borrow $22,000 more than the rich.
Parent PLUS loans are keeping people of color from building generational wealth. Parent PLUS loans were originally created for asset-owning parents to be able to fund their children’s college education, but Black parents are using 42% of their income to pay back loans they never used, while Latinx parents are using 25% of their income. In 2015, 40,000 retired PLUS borrowers had their wages garnished because they defaulted on their loans.
What does this mean for a silly zillennial like you? You’re probably going to be expected to financially support your parents in retirement and delay your own.
If Joe-Joe doesn’t include Parent PLUS loans in his forgiveness plan, we have to fight for our elders.
All that to say, $10,000 is a decent start — but this is a long game, and we need to prepare ourselves for what’s next.
Here’s what you can do to prepare before student loan payments start again on January 1, 2023:
Join the National Student Debt Strike with The Debt Collective. On their website, they list a few ways to get your monthly payments as close to $0 as possible without defaulting on your loans.
If your total annual income is $19,320 or under, your monthly IDR payment will be $0. More info on that here.
Calculate what 5% of your discretionary income looks like, and, if you can afford it, practice putting that amount in a savings account so that you know what it’ll feel like when student loan payments come back.
If you can afford it, start making as many payments in the next four months as you can because it will all go toward the principal balance of your loans instead of going to compound interest. (Don’t worry, y’all, I have a whole newsletter dedicated to compound interest that’ll blow your mind.)
Look at your student loan balance. 1 in 3 student loan borrowers don’t know their interest rates, and most of the people I’ve interviewed who have gotten student loan forgiveness through PSLF don’t even know how much they initially borrowed.
You can’t fight what you don’t know, boo. At the very least, know your interest rate.
Side note: If you’re looking at your federal student loans, your interest rate won’t show up until January 2023. If you have private loans, you’ll be able to see your interest rates.
DO NOT refinance your federal student loans. If you do that, you’ll be ineligible for future rounds of student loan forgiveness.
Student loans are fucking us all, but at least we’re in it together. Drop me a line if you have any questions about student loans. I got your back.
If this newsletter was helpful to you, here are a few ways to support my work:
You may gift financial/career coaching sessions to a friend by sending me the $150 session fee on Venmo (@leo_aquino81) with your friend’s name and email address in the memo. Please make sure you set your settings to private.
Buy me a coffee. Ok, I’m caffeine-free lol, but all proceeds will go towards my next green juice.