Financial planner Savon Gibson has already been talking to clients about what happens to their budgets if $10,000 in federal student-loan debt gets cancelled.
But what does that mean for the rest of your financial life?
“Supporters say borrowers badly need relief from a crisis connected to soaring education costs that have taken a toll on family budgets. ” “ Opponents say forgiveness is an unfair bailout and a Pandora’s Box opening up questions on who else should or shouldn’t get debt relief.” Many of Gibson’s clients hold between $20,000 and $40,000 in student loans, so $10,000 of relief would be “substantial.” Around 20% of Gibson’s clientele has been tucking aside money for student-loan payments, while many others have applied the would-be payment money elsewhere.
Around seven in ten borrowers making regular payments before the pandemic pause say they can afford to resume payments, according to a Federal Reserve Bank of Philadelphia survey released in May. Of course, $10,000 forgiveness “could set in motion events and circumstances leading to higher scores.” That would happen, for instance, if money otherwise intended for student loans can now go towards high credit-card balances.
Scores are created with factors like “payment history, your balances or how much you owe, age of your credit history, new credit and the different types of credit you have, also known as your credit mix,” Poe said. Plus, the ratio of your debt to your credit limit. Yet borrowers are going to avoid an upcoming tax surprise if Biden goes ahead with forgiveness, experts say. They might just need to plan for extra state income taxes depending where they live.
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