Take advantage of student loan cancellation
If the Supreme Court comes through for the HENRYs and supports the cancellation of some of your student loans, here are some things you can do with the money you’ve saved: pay down debts, pad your emergency fund, set aside money for a down payment, invest it for your mid or long-term goals, and/or blow it guilt-free on something you’ve been eyeing for a while.
If you’re anything like us, your response to Joe Biden’s announcement of the student loan cancellation program probably sounded something like this: “Oh f*ck yeah”. There’s only one problem: it hasn’t happened yet. Tell us if this sounds familiar: you’re making good money and paying off credit card debt, but student loan debt still looms over your head. Wouldn’t it be nice to see that big number reduced by a clean $10,000? We like to be optimistic around here, so let’s take the positive approach and assume that (eventually) the Biden Administration’s plan will come to fruition. When that happens, graduates around the country will suddenly feel a weight lifted from their shoulders. But with this newfound lightness and a refreshing pep in your financial step, you might be wondering how you can take advantage of Daddy Biden forgiving your sins - ughum, debts.We’ve got you covered. But first, let’s discuss the current state of the loan cancellation program.
Will student loans be cancelled?
The plan to cancel $1.2 Trillion worth of debt was announced by the Biden Administration in August, 2022 and borrowers across all fifty states rejoiced. Their excitement was short-lived. The program hit a wall when judges in multiple states placed an injunction on forgiveness in November. Since then, the plan has been playing a metaphorical game of legal pinball, bouncing throughout the courts from one lawsuit to another. As of January 2023, the Department of Justice has called in the big guns, requesting the Supreme Court to lift the injunction. While the program remains in limbo, Papa Joe has extended the pause on student loans until the Supreme Court makes a ruling. What’s that mean for you? Not much. We’re playing the waiting game now. But amidst this hiatus, we can spend our time thinking about all the cool shit we’re gonna do with that extra 10k.
But with this newfound lightness and a refreshing pep in your financial step, you might be wondering how you can take advantage of Daddy Biden forgiving your sins - ughum, debts.
Student loans have been canceled (hopefully). Now what?
Having a large sum of debt taken off your financial plate is more refreshing than a poolside Mai Tai in July. But if you’re thinking about celebrating by actualizing this image and booking a trip to Thailand in July, pump the brakes for just a second. There’s a plethora of ways you can take advantage of student loan forgiveness and make smart financial decisions, many of which can be combined to give you an outcome that works best for you. Buuuuut, if you need a get-away, we’re not gonna stop you. You can rebuild your emergency fund AND take that weekend trip you’ve been thinking about. Here are five and a half ways to capitalize on debt cancellation.
1. Pay off any high interest lingering credit card debt
Credit Card debt often has the highest APR, meaning the interest you’re charged on your AMEX or Mastercard is significantly higher than your other types of debt. With that in mind, one might reroute any payments that were being previously made on student loans in order to pay down the high interest debt. The sooner you get rid of high-interest balances, the more money you’ll have in your pocket in the long-run.
2. Pay more of your student loans
We call this strategy “Do Nothing”...only in the sense that nothing changes from your perspective. If your credit card debt is in check and you’ve got a strong grip on any other outstanding debts, trust the process. Continue doing what you’re doing and thanks to Mr. Biden and Company, you’ll be debt-free faster than you can say “We did it, Joe!
3. Rebuild/pad your emergency fund
Yes, it’s a good idea to have an emergency fund. No, an emergency fund is not the same thing as having “cash in the bank”. It shouldn’t go into an account that you use for standard life expenses. Instead, it’s set aside strictly for - you guessed it -emergencies! It’s how you survive an unexpected job transition, illness, or other unforeseen life circumstances. If you don’t already have an emergency fund, you could use the money you were using to pay down your student loans and build up no more than three months worth of fixed expenses. You can read more about the emergency fund here.
4. Help with a down payment on a house while interest rates are rising
When interest rates rise, monthly mortgage payments go up significantly. If you’ve opted for a variable rate type, one move by the Federal Reserve can have you paying double or triple the amount in interest on a home. Given the recent surge in interest rates, a home that was "affordable" twelve to eighteen months ago may now be thousands of dollars more expensive. If you’re already saving for a home, you could take the money you were using to pay down your loans to bolster that fund. When you have more money to put "down" on a home, you save on interest and save on monthly payments. But if buying a home isn’t right for you yet, that’s ok! If you feel like you’re throwing money away by renting, trust us, you’re not. Read more here to see if buying a home is right for you.
5. Save and/or invest in a ROTH or taxable account for long or mid term goals
When it comes to long-term goals, the key is funding those investment accounts now to ensure it has time to grow. Any money that goes into a ROTH IRA (investment Individual Retirement aAccount) grows and can be taken out in the future TAX FREE. With the power of compound interest today, a ROTH account could grow by as much as 15x in thirty years. If you suddenly have some extra money laying around, it could be a great idea to stick it in a ROTH. Your future self will thank you. If you’d like to learn more retirement accounts, be sure to check out our blog, “What the Hell is an IRA?”On the other hand, funds invested in a taxable account will help you reach your mid-term goals, such as buying a house or a car, planning a wedding, traveling, and more. Your money will likely work harder for you in an investment account than it will in a high yield savings account. That way, instead of letting your newfound funds sit all by their lonesome in a regular old savings account, let that money werk so you can buy a better car, or a better bicycle…or a better helmet.
5 1/2. Take that big bucket list trip or upgrade your lifestyle
If working from home has made you feel like you’re living on a deserted island, it might be time to get away and unwind on an actual island, preferably one that has people to bring you wine and shrimp tails. Use the same amount you were spending monthly on your loan payments and redirect those funds in a high-yield savings account bucket named “Island Paradise” or whatever title you would prefer. You’ll be less likely to touch those funds when you’re reminded of their endgame.If your student loans feel like a dark cloud that perpetually follows you around...you're not alone. We've helped many of our clients sift through the noise and find a plan that works for them. Take the Quiz to find out if you qualify for the Stash Plan.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Stash Wealth Staff Writer
Stash Wealth Staff Writers are knowledgeable about personal finance topics. Their objective is to unravel the complexities of finance trade jargon, products, and services in order to equip HENRYs with a sound understanding of financial matters.
