What Student Loan Cancellation Could Mean for Your Budget

The Biden administration announced plans for federal student loan relief last month. The plans include the cancellation of up to $10,000 in debt for borrowers who meet income requirements and up to $20,000 for Pell Grant recipients. Beyond cancellation, the proposal also extended the pause on loan repayment through the end of the year and introduced a new income-driven repayment plan aimed at lowering monthly payments.

For now, these plans are just, well, plans. And plans can change. Many experts expect the proposal to face legal challenges, so don’t make any big money moves just yet. Here’s what you can do now to prepare for relief, and what it could mean for your budget.

There’s still uncertainty

If the proposal moves forward unchanged, it could still take time for your budget to feel the effects. Loan forgiveness should be automatic for roughly 8 million people because they’ve already supplied income data, according to the Department of Education. The Biden administration aims to make an application available for everyone else by early October. Relief is estimated to come four to six weeks after completing the application.

“There’s still a lot of unanswered questions,” says Kyle Liseno, head of the student loan department at the nonprofit agency American Consumer Credit Counseling. “I’ve been telling people, just kind of stay tuned to studentaid.gov, which is the Department of Education website.” You can also sign up for application notifications on the Department of Education’s subscription page. The application deadline is Dec. 31, 2023. But borrowers are advised to apply before Nov. 15 of this year to get relief before the payment pause ends.

Here’s what could happen if relief withstands legal challenges

It could free up more money for expenses and goals

The newly announced relief plans could erase or reduce a substantial amount of your federal loan debt. (Private student loans are not covered.) The impact on your budget could be massive, especially during a time of heightened inflation and interest rates.

“$10,000 could be a great amount for someone, and it could really help them in terms of just getting back on their feet and getting rid of financial debt,” says Maggie Klokkenga, a certified financial planner in Morton, Illinois.

If you don’t qualify for forgiveness, you’ll still benefit from the pause on loan payments, which has been extended through Dec. 31, 2022 — interest-free. If you keep making payments during the pause, your balance will drop. If you hold off, you can put some of the money you previously spent on payments toward more urgent expenses, such as rent or high-interest debt.

But even if you’re eligible, you won’t be handed a $10,000 check. Klokkenga suggests looking at your previous student loan statements to remind yourself of the minimum payment amount. Then, you can allocate some or all of that amount (depending on how relief impacts your balance) toward saving for an emergency fund and other financial goals, “whether it’s vacation, short term, or whether it’s retirement, long term,” Klokkenga says. “And then you can still have some fun with it, but it’s not to say this is a windfall or that you just won the lottery.”

Liseno says he’s already seen many people pursue financial goals while payments have been paused. “All this deferment has shown that when student loans are off the table, young people are buying homes now. They’re buying cars. That money is going into the economy,” he says.

Think of what you would do with the extra cash if your $300 minimum monthly payment got slashed to $150. Or $0. Klokkenga says using an online tool, such as Utah State University Extension’s PowerPay, can help you create a debt payment or spending plan based on your student loan savings.

You might not feel a difference

Federal student loan payments have been on pause since March 2020. This latest extension should feel familiar.

The relief plan “is going to help a lot of Americans with … their future budgets,” Liseno says. “Because most people haven’t had to pay in almost three years.”

If you took advantage of the pause, you’ve likely already moved money around elsewhere in your budget. Or, if you’ve been responsibly socking the monthly payment amount away in savings, you’ll be accustomed to parting with that money if you still have a balance to pay come January.

Student loan relief plans are still up in the air. It may be tough to predict what will happen with your finances until there’s a clear resolution. In the meantime, stay on top of news and do your best to prepare for different outcomes.

Lauren Schwahn writes for NerdWallet.

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Are 0% Interest Student Loans Better Than $10K Cancellation?

Cancellation is the most popular proposal to address student loan debt, but it isn’t the only one out there. With the interest-free student loan payment pause in its third year, some wonder if 0% interest on student loans is a better answer.

“I think this COVID pause has really illustrated — hopefully for policymakers but definitely for consumers — that the interest is what’s really killing people,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

She’s talked to many borrowers who say they wouldn’t turn down forgiveness but would much rather have a cut in the interest rate.

The Biden administration is expected to announce $10,000 in cancellation to federal student loan borrowers earning less than $150,000 for individuals and $300,000 for couples. This aligns with the president’s campaign promises but falls short of what some experts think is necessary.

Lodriguez Murray, United Negro College Fund senior vice president for public policy and government affairs, encourages “the administration to go bigger and bolder.”

“When there is a way you can reset the course of history for certain populations, you should,” Murray says.

Tomas Campos, CEO and co-founder of debt optimization software Spinwheel, thinks 0% student loan interest could be a realistic solution. Student loan debt “impacts half of American households. They may not be in debt themselves, but they see their loved ones struggling with it,” says Campos.

According to a recent NPR poll, the majority of the general public supports partial student loan relief, but that support decreases with higher amounts of cancellation.

Here’s how eliminating student loan interest could work based on two existing proposals aimed at borrowers with problematic long-term debt.

Two plans for 0% interest


Last summer, U.S. Sen. Marco Rubio, R-Florida, reintroduced the Leveraging Opportunities for Americans Now Act. This act, first introduced in May 2019, calls for the government to disburse all federal student loans at 0% interest and replaces interest charges with a one-time origination fee.

Under the LOAN Act, undergraduate student loans would carry a 20% origination fee, and PLUS loans would carry 35%. These fees would be added to the total principal amount and paid back over the life of the loan.

Borrowers would automatically be placed in an income-driven repayment plan but would have the option to select the standard 10-year repayment plan. Those who repay their loan early would be refunded some of the origination fee.

If a student borrows $27,000 in federal loans at the 2022-23 interest rate of 4.99%, their payment would be about $286 a month for 10 years, with $34,349 repaid in total. With a 20% origination fee and no interest, that borrower would have $270 monthly payments with a $32,400 total repayment.

Low-income borrowers who enter an income-driven repayment plan would benefit most. According to a NerdWallet analysis, a borrower with $27,000 in debt and a starting annual salary of $30,000 would pay nearly $42,000 by the time income-driven repayment forgiveness kicked in. With the Rubio proposal, that borrower may pay about $9,600 less.

Zero-Percent Student Loan Refinancing Act

Sen. Sheldon Whitehouse, D-Rhode Island, introduced the Zero-Percent Student Loan Refinancing Act in February of this year. Rep. Joe Courtney, D-Connecticut, also introduced a version of the bill to the House.

The Zero-Percent Student Loan Refinancing Act would automatically refinance all loans under the federal Direct Loan program to 0% interest. It would also give borrowers with Federal Family Education Loans, Perkins loans and Public Health Service Act loans the option to refinance to 0% interest.

Borrowers with private student loan debt would be eligible for the 0% refinance, too, according to email statements from Meaghan McCabe, a senior communications advisor with Whitehouse’s office

This proposal was introduced to help student loan borrowers recover from pandemic-induced financial strain and mounting interest totals that have the potential to exceed the original principal loan balance. The proposal would allow borrowers to refinance at 0% through 2024.

Borrowers would be eligible to refinance anytime during the open window of the program, even if they are still in school, according to McCabe. Under this proposal, a student who refinanced immediately and had $27,000 in debt at 4.99% interest would save about $7,349 over a 10-year term.

What can you do now?

The existing proposals are a long way from coming to a vote in either house of Congress, and there isn’t even consensus on whether 0% is the ultimate answer to the student debt crisis.

Interest-free student loans “can be coupled with other actions, really, but it’s not enough to make a real difference,” says Murray.

Mayotte says a reduced interest rate, maybe 1%, across student loans may be a better solution, as borrowers may not take 0% debt seriously. She also believes student loans with reduced interest rates have a better chance of garnering bipartisan support in a divided Congress.

Meanwhile, federal student loans are scheduled to return to repayment in September, and that means interest charges will also resume.

Borrowers should plan for repayment. If you think you’ll struggle, contact your servicer to discuss your options, such as reduced payments or halting payments altogether through forbearance. No matter how you proceed, however, interest charges will continue adding up.

As for interest-free or reduced-interest student loans, Mayotte urges borrowers to make their voices heard. She says, “I think if more consumers start writing their members of Congress asking for that, we might get some more attention and more legs to it.”

Cecilia Clark writes for NerdWallet.

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Balancing Hopes, Dreams and a Low-Paying College Major

Humanities majors are more than a punchline. Not everyone can or wants to be a STEM major, and the world would be a poorer place if they were.

To have great things to read, music that inspires, perspectives that challenge us — to have a sense of reward and meaning in life —  we must have students who pursue college degrees that don’t lead directly to a big paycheck.

That turns the pursuit of intellectual curiosity and artistic appreciation into a balancing act: the likelihood you’ll make a good living versus the debt you incur along the way.

“I encourage students to find this balance between what they like and what pays,” says Nicole Smith, research professor and chief economist at the Georgetown University Center for Education and the Workforce. “I’m not discounting how beneficial these positions are to our society as a whole, but if you can’t pay back your student loan, you’ll be in a serious state,” Smith says.

Liberal arts grads face longer odds compared with science, technology, engineering and mathematics degrees, but a well-chosen humanities major doesn’t have to be a vow of poverty.

How long does it take to recoup what you paid?

To assess the value of earning a specific degree at a specific institution, consider the concept of price-to-earnings premium, spearheaded by Michael Itzkowitz, senior fellow of higher education at Third Way, a center-left think tank.

It measures what you pay out of pocket, including loans, against the amount you’ll earn each year above the earnings of a typical high school graduate. The results show how quickly you can get a return on investment in your college major.

The majority of liberal arts degrees lead to a “pretty good ROI,” says Itzkowitz, but the specific program you graduate with and the type of degree you earn will affect individual outcomes.

The bachelor’s degree programs that allow graduates to recoup their costs within five years or less include what you’d expect: Registered nursing, electrical engineering and dental assistants all make the list.

Among the programs with no economic ROI at all: drama, fine arts and anthropology.

Itzkowitz says the majority of college programs enable students to recoup costs within 10 years or less. “College is still worth it the vast majority of the time,” he says.

Unfortunately, his research also found nearly one-quarter of all college programs of study show graduates failing to recoup their costs in the 20 years after graduation.

There are several tools that can help you compare data on costs, earnings and debt:

  • The College Scorecard, a data tool from the U.S. Department of Education.
  • An interactive map of price-to-earnings premiums from Third Way.
  • The Buyer Beware tool from the Georgetown Center for Education and the Workforce.

Of course, education and major aren’t the only predictors of income. Your wages will also be affected by where you live, your gender and race, whether you work in the public or private sector, and your experience level.

Should you get a graduate degree?

Your humanities degree could go much further if you get an advanced degree — generally, the more education you have, the greater your earnings, according to Bureau of Labor Statistics data.

But you should continue to weigh cost versus benefit since it’s also easier to rack up debt. A graduate degree may increase your earning potential, or it may just increase your debt.

For example, if you majored in liberal arts for your bachelor’s degree you can expect a median annual wage of $50,000, according to the Bureau of Labor Statistics.

But if you get a graduate degree in law, taking on more debt, you could earn a median of $126,930. A master’s of fine arts, on the other hand, is unlikely to yield higher earnings: The annual median wage is $42,000.

Your other options could include a minor in a field with higher earnings, an internship to get on-the-job experience or finding less-expensive graduate programs if your intended field requires it.

If you’re taking on additional student debt, remember that the federal government offers payment plans that tie the size of your payment to your income. Most private loans don’t.

What are your options if your earnings are low?

If you’re already working in a low-paying field and you have student loan debt, look at how you can lower payments or discharge your debt.

If you’re having trouble making payments, consider enrolling in an income-driven repayment plan, which ties payments to your monthly income. Your payment amounts will increase as your earnings do, too.

Those working in public sector fields should learn the ins and outs of public service loan forgiveness, a red-tape-laden process of getting your loans discharged after 10 years of payments on a qualifying payment plan while working full time in a qualifying field.

This article was written by NerdWallet and was originally published by The Associated Press. 

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

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6 Things to Know About Student Loans Before You Start School

The summer before your freshman year in college means choosing classes, checking out your future roommate’s Instagram and figuring out how you’re going to pay the bills.

Chances are you will need a loan: 2 out of 3 students have debt when they leave school, according to 2017 graduate data from the Institute for College Access and Success. But consider a loan after you’ve accepted grants, scholarships and work-study. You can get these by submitting the Free Application for Federal Student Aid, or FAFSA.

Here are six things you need to know about getting your first student loan.

1. Opt for federal loans before private ones

There are two main loan types: federal and private. Get federal loans first by completing the FAFSA. They’re preferable because you don’t need credit history to qualify, and federal loans have income-driven repayment plans and forgiveness that private loans don’t.

You may be offered two types of federal loans: unsubsidized and subsidized. Subsidized loans — for students with financial need — don’t build interest while you’re in school. Unsubsidized loans do.

Take a private loan only after maxing out federal aid.

2. Borrow only what you need — and can reasonably repay

Undergraduate students can borrow up to $12,500 annually and $57,500 total in federal student loans. Private loan borrowers are limited to the cost of attendance — tuition, fees, room, board, books, transportation and personal expenses — minus financial aid that you don’t have to pay back.

Aim to borrow an amount that will keep your payments at around 10% of your projected after-tax monthly income. If you expect to earn an annual salary of $50,000, your student loan payments shouldn’t be over $279 a month, which means you can borrow about $26,000 at current rates.

To find future earnings, look up average salaries in the U.S. Department of Labor’s Occupation Outlook Handbook. Then, use a student loan affordability calculator to estimate payments.

Your school should provide instruction on accepting and rejecting financial aid in your award letter. If you’re not sure how to do it, contact your financial aid office.

“We’re not scary people,” says Jill Rayner, director of financial aid at the University of North Georgia in Dahlonega, Georgia. “We really do want students and families to come in and talk with us so we can help strategize with them.”

3. You’ll pay fees and interest on the loan

You’re going to owe more than the amount you borrowed due to loan fees and interest.

Federal loans all require that you pay a loan fee, or a percentage of the total loan amount. The current loan fee for direct student loans for undergraduates is 1.062%.

You’ll also pay interest that accrues daily on your loan and will be added to the total amount you owe when repayment begins. Federal undergraduate loans currently have a 5.05% fixed rate, but it changes each year. Private lenders will use your or your co-signer’s credit history to determine your rate.

4. After you agree to the loan, your school will handle the rest

Your loan will be paid out to the school after you sign a master promissory note agreeing to repay.

“All the money is going to be sent through and processed through the financial aid office — whether it’s a federal loan or a private loan — and applied to the student’s account,” says Joseph Cooper, director of the Student Financial Services Center at Michigan Technical University in Houghton, Michigan. Then, students are refunded leftover money to use for other expenses.

5. You can use loan money only for certain things

Loan money can be used for education-related expenses only.

“You cannot use it to buy a car,” says Robert Muhammad, director of the office of scholarships and financial aid at Winston-Salem State University in North Carolina. “It’s specifically for educational purposes: books, clothing, anything that is specifically tied to the pursuit of their education.”

You can’t use your loan for entertainment, takeout or vacations, but you should use it for transportation, groceries, study abroad costs, personal supplies or off-campus housing.

6. Find out who your servicer is and when payments begin

If you take federal loans, your debt will be turned over to a student loan servicer contracted by the federal government to manage loan payments. If you have private loans, your lender may be your servicer or it may similarly transfer you to another company.

Find your servicer while you’re still in school and ask any questions before your first bill arrives, says John Falleroni, senior associate director of financial aid at Duquesne University in Pittsburgh. They’re also whom you’ll talk to if you have trouble making payments in the future.

When you leave school, you have a six-month grace period before the first bill arrives.

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The article 6 Things to Know About Student Loans Before You Start School originally appeared on NerdWallet.

Free Community College Is Dead — and Still Possible

Until late October, community college in the U.S. was the closest it’s ever been to becoming free for everyone nationwide.

A $45.5 billion proposal for two years of free community college, part of the Biden administration’s “Build Back Better” agenda, promised students a path to attain a college degree without student loans — a transformative pledge in a country that collectively holds over $1.7 trillion in student loan debt. The proposal would’ve covered all tuition and fees associated with attending community college.

But after surviving several revisions to the forthcoming, scaled-back $1.75 trillion domestic investment proposal — also known as the “Build Back Better” bill — two years of free community college was cut. Other proposals aimed at higher education are expected to make it into the budget, including an increase to the Pell Grant and funding for historically Black colleges and universities and other minority-serving institutions.

Had the proposal made it into law, it would’ve soon paid for itself, according to an analysis from Bloomberg News and Georgetown University’s Center on Education and the Workforce.

If every state had implemented free community college, the study projected, higher wages for those who earned bachelor’s and associate degrees would boost GDP by $170 billion and tax revenues by $66 billion every year for the next decade. The analysis found that the increase in GDP would’ve resulted from more workers receiving higher wages after attaining bachelor’s or associate degrees.

Community colleges are already a crucial part of job training in the U.S; in 2019, roughly 49% of all employed college-educated Americans attended a community college. Moreover, community colleges educate a higher proportion of minority students compared with traditional four-year colleges.

Martha Parham, senior vice president of public relations at the American Association of Community Colleges, said via email that the AACC is disappointed the proposal for free community college was dropped. Still, she was “also proud that community colleges are being discussed at the highest policy levels as solution providers for increasing the number of skilled workers in America.”

Free community college proponents say they’re not giving up

Two years of free community college won’t make it into the federal budget for 2022, but those who have fought for it say they aren’t finished pushing to get the proposal into law.

“I’m going to get it done,” President Joe Biden said in an October CNN town hall. He added that first lady Jill Biden, who currently teaches at a community college, wouldn’t be happy with him if he didn’t. More recently, Education Secretary Miguel Cardona told the Detroit Free Press in November that he would continue to advocate nationwide for free community college.

Some members of Congress have echoed the sentiments, including some of the original sponsors of the free community college proposal. Since 2015, when the proposal was first introduced, lawmakers such as Sen. Tammy Baldwin, D-Wis., have pushed to make community college free nationwide.

Sen. Patty Murray, D-Wash., said in an email that the widespread support for free community college, from Congress to the White House, has created momentum behind the proposal. That momentum, she said, motivates her to continue pushing for free community college.

“We must build on the progress we make to get students and workers the support they need to succeed,” said Murray, a co-sponsor of the proposal. “Just like President Biden — and community college champions like Senator Baldwin — I won’t stop fighting until we finally make community college tuition-free.”

Free or not, community college has much to offer

In most parts of the country, community college still carries a price tag, but that doesn’t mean it’s not a good option for higher education.

Community colleges generally offer associate degrees, which can take at least two years to complete. Someone with an associate degree earns $938 a week on average, or $157 more than someone with a high school diploma and no college, according to 2020 data from the Bureau of Labor Statistics. Those with an associate degree are also less likely to be unemployed than someone with a high school diploma only.

​​» MORE: How to Pay for College

Although you’ll have to pay to attend community college in most states, the costs are still significantly lower than most public four-year colleges. For example, tuition for the 2021-22 academic year at an in-district two-year college was $3,800, while an in-state public four-year college cost $10,740, according to the College Board.

Eighteen states already offer free community college to at least some students, according to the Campaign for Free College Tuition, a nonprofit that aims to make college more affordable. In addition, there are states, such as Tennessee, that make two years of public community or technical college free for residents.

For those who want a bachelor’s degree from a traditional college, two years of community college, then transferring to a four-year school for completion is typically the least expensive path. However, if this is your intention, make sure the credits you earn from community college will transfer to the college you wish to attend.

Colin Beresford writes for NerdWallet. Email: cberesford@nerdwallet.com.

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Dorm Costs Have Soared, but Many Freshmen Have No Choice

Living in the dorms is a rite of passage for millions of first-year college students. But like the rest of the college experience, it’s costly. And in many cases it’s mandatory.

Moving my only daughter into the dorms of scenic Appalachian State University her freshman year was tough on us both, but an exciting time. She received an academic scholarship for tuition and fees, so room and board were among our only financial obligations. Well, the only official ones — college kids have many “needs.”

As with many four-year colleges and universities, App State requires freshmen to live on campus. They’re the only ones guaranteed housing. Students beyond their first year interested in staying in the dorms enter a lottery system to battle for the remaining rooms. By early spring of her freshman year (2019-20), she got word she had “won” a room for sophomore year. But then COVID-19 hit, and like many other college students, she finished her 2020 spring semester at home.

As summer 2020 passed, the thought of living in tight dorm quarters looked less and less appealing, so we began apartment hunting. We found that although the rental market in the small college town of Boone, North Carolina, is competitive, she could get into an apartment for less than the cost of a dorm.

Student housing is a boon to universities and colleges across the country, and dorm costs have skyrocketed 111% at public four-year institutions over the past 30 years, far faster than rents. In many markets, first-year students could rent apartments nearby for less than they pay on campus, particularly if they’re sharing the costs with roommates. But they’re not always given that option.

It isn’t clear how many colleges and universities currently require most freshmen to live on campus. The Department of Education does not collect this data, though 74 schools report requiring all first-time degree-seeking students — no matter their year — to live on campus, no exceptions. Whatever the exact figure, many schools do this, often under the justification that on-campus living is a good transition into adulthood. But if we allow 18-year-olds (or their parents, by proxy) to incur the costs of college and, in many cases, take on student loan debt to cover them, isn’t the better transition into adulthood allowing them to determine just how that money is best spent?

Housing is a considerable source of college revenue

As COVID-19 spread and dorms shuttered in 2020, colleges’ reliance on student housing as a source of revenue became apparent. Indeed, auxiliary revenue (which includes housing, dining, athletics and other sources), was one of the hardest-hit categories of revenue loss, especially among larger institutions, according to data obtained from 107 schools by the Chronicle of Higher Education. In an effort to minimize this loss early on, some schools debated whether to provide refunds for the remainder of the semester when students were sent home and dorm rooms sat empty, and added language to 2020-21 housing contracts protecting them against potential future refunds. This is because institutes of higher learning make considerable money on student housing, though pinpointing exact figures is difficult.

Four-year institutions made $28 billion on “ancillary enterprises” in the 2018-19 school year, roughly 8% of all revenue, according to the National Center on Education Statistics. This figure lumps housing and dining in with parking, on-campus stores and other sources of revenue. New York University’s 2021 fiscal budget, one of few publicly available online, reveals 10% of its revenue comes from student housing and dining.

This isn’t to say on-campus living requirements are rooted in money alone. Some of the arguments colleges make for policies are sound: Living in a dorm can be enjoyable, convenient, good for grades and retention, and a more gradual segue into adulthood. However, this doesn’t make it the right fit for everyone.

Making on-campus housing optional and at the discretion of students (and their parents, no doubt) could lead to an increased supply of available dorm rooms for upperclassmen. In other words, the housing would more likely be available to students for whom it’s a good fit, no matter their academic year.

Most schools with on-campus freshman housing requirements have ways to bypass those mandates, but what passes as proper justification for living off-campus is often very narrow, if it’s clear at all. At my daughter’s college, for example, only some nontraditional students, those living at a parent’s home within 30 miles of campus, or those taking only online courses while living with a parent are eligible for an exemption. That last option was added only during the pandemic. Unfortunately not eligible for an exemption: those who have made a sound and thoughtful decision that living off-campus is a better fit, whether for financial or other reasons.

On-campus housing costs rise more steeply than off-campus

From 1989-90 to 2019-20, the average room rate among public four-year institutions rose 111% after accounting for inflation, to $6,655 per academic year, generally 30 weeks, according to data from the Department of Education. Incidentally, public four-year institutions are some of the most affordable. Compare this to the national median gross rent — the Census measure that includes both the contracted rent amount plus utilities — which grew just 24% during that same period.

At that average room rate, the student’s weekly housing cost is $222. Median gross rent works out to about $253 per week. So, dorms are cheaper? Hang tight. Lest you think I’m undercutting my own argument here, let’s not forget the costs incurred moving into and out of the dorms at least once per academic year, if not per semester, along with the costs of finding other housing during the remaining 22 weeks of the year, and the fact that very few college students are paying the entire rent of an apartment or house on their own.

If that national median rent was shared with a roomie, you’d be looking at $127 per week. But the national median is just a ballpark estimate.

Is it always cheaper off campus? No

New York City is one of the priciest and most competitive rental markets, so students attending college at highly competitive and expensive institutions such as New York University or Columbia University may breathe a sigh of relief knowing they have on-campus living options. In fact, the weekly room rate at Columbia’s freshman dorms is a couple of hundred dollars cheaper than one person’s share of rent on a median-priced two-person, two-bedroom apartment in Manhattan, according to the June 2021 Elliman Report, a monthly rental market report. However, the difference is negligible between several of NYU’s freshman dorms and that same median rent.

The COVID pandemic brought with it slowed rent growth and even declines in many urban centers, according to data from Realtor.com. As of May, some pricey metro areas including New York City, San Francisco and San Jose are still seeing rents lower than last year. Students able to freely participate in local rental markets may have been able to lock in rents lower than what they’d pay in the dorms, even in big cities.

These big cities often have extreme housing prices, and students in more representative college towns across the country would likely find more comparable prices when weighing dorm costs against local rentals.

App State is a public four-year college nestled in the mountains of Western North Carolina. It’s a gorgeous place and a welcoming institution. The mascot is a Mountaineer named Yosef wearing a flannel shirt and a beard, for crying out loud. And their football is some of the best. Go ‘Neers! The freshman dorm my daughter was assigned to in 2019-20 opened to students in 1970 and doesn’t have air conditioning. The weekly rate there is roughly $50 more than that of one person’s share of a two-bedroom rental, according to Census data. Her sophomore year, she managed to find a shared four-bedroom home, where her portion of the rent is about $140 per week, and includes parking and all utilities.

Navigating limited options

It doesn’t always make sense — financial or otherwise — to rent an apartment as a college student. However, when it does make sense, students should be able to elect that option, or any other option that fits their budget, long-term goals and any other personal factors. We allow, even encourage, 18-year-olds to take on student loan debt — debt that they’ll typically carry for at least the first decade of their career, if not longer. On-campus housing requirements add insult to the mounting costs of higher education by not giving students latitude to decide how their money — and first year away from home — are best spent.

Students opting for a college that requires on-campus housing have little to no say in the matter. In that case, the best advice is to look into possible exemptions from the requirement if staying in the dorms would cause considerable hardship, and always be strategic with your use of student loans.

For those with a choice, a careful comparison of your options will help ensure you’re making the right choice for your budget and your long-term educational goals. Make sure to include:

  • Direct costs such as rent and utilities versus on-campus housing rates and the costs of living when school isn’t in session.
  • Transportation and parking.
  • Convenience and time considerations.
  • Possible social trade-offs like being farther away from college social clubs but perhaps having the luxury to choose roommates.
  • Academic preferences such as how a living arrangement may affect study location or quality.

Elizabeth Renter writes for NerdWallet. Email: elizabeth@nerdwallet.com. Twitter: @elizabethrenter.

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With Student Loan Payments Set to Return, Here’s How to Get Help

For 42.9 million student loan borrowers, it’s been 18 months without a payment. That ends in October — ready or not.

The interest-free federal student loan payment pause, known as a forbearance, was extended three times after it initially went into effect in March 2020 as a way to help reduce the financial blow many borrowers experienced as a result of the pandemic.

But with payments set to resume in a few months, servicers — the companies that manage student loan payments — are already fielding thousands of calls a day from borrowers seeking student loan help, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance, a nonprofit trade organization for student loan servicers.

Time is running out for both servicers and loan borrowers to prepare for repayment.

While Education Secretary Miguel Cardona has indicated it’s not “out of the question” to extend the loan forbearance beyond Sept. 30, for now borrowers should be prepared for bills to come due sometime in October (they’re supposed to be notified at least 21 days prior to their exact billing date).

Talk with your servicer now

Servicers are expecting borrower demand for help to increase and may have trouble keeping up. The repayment system has never been turned off before, so no one is sure what restarting it simultaneously for 42.9 million people will look like.

“We don’t have any guidance from the department [of Education] about what a resumption strategy would look like,” says Buchanan. “We are in the time frame where those plans need to be communicated; it cannot wait.”

Richard Cordray, the newly appointed head of the Education Department’s federal student aid office, told The Washington Post for a story on June 11 that restarting payments was “a very complex situation” and said the office planned to provide more information to servicers soon. He also said the department planned to hold the servicers accountable by setting rigorous performance benchmarks.

Despite the uncertainty, if you’re worried about your ability to make payments, there’s no downside to contacting your servicer now to beat the rush, says Buchanan. Ask about your best options to manage payments, depending on your situation.

If you’re not sure who your servicer is, log in to your My Federal Student Aid account to find out. To ensure you don’t miss any notifications, check that your contact information is up to date on your loan servicer’s website and in your StudentAid.gov profile.

Know your repayment options

“Your options are not ‘pay or default,’” says Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators. “There are options in between for lowering payments. Nobody, including the federal government, wants to see you go into default.”

Default happens after roughly nine months of late federal loan payments. It can result in a damaged credit score, wage garnishment, withheld tax refunds and other financial burdens.

  • If payments will be a hardship: Enrolling in an income-driven repayment plan sets payments at a portion of your income, which could be $0 if you’re out of work or underemployed. Or you could opt to pause payments (with interest collecting) using an unemployment deferment or forbearance.
  • If you were delinquent before the pause: Your loans will be reset into “good standing.” Making monthly payments on time will help you retain that status. But if you think you might miss a payment or you don’t think you can afford payments altogether, contact your servicer about enrolling in an income-driven plan.
  • If you were in default before the pause: Contact your loan holder or the education department’s default resolution group to find out how to enter into loan rehabilitation and get back into good standing.

Find a legit resource

Servicers may be your first point of contact, but they don’t have to be your last. You may have other needs your servicer isn’t providing, such as financial difficulty beyond your student loans or legal advice.

Cash-strapped borrowers can find legitimate student loan help for free with organizations such as The Institute of Student Loan Advisors. Other student loan help, such as a credit counselor or a lawyer, will charge fees. You can find reputable credit counselors through organizations such as the National Foundation for Credit Counseling.

Financial planners can also help, but it’s best to look for one with student loan expertise, such as a certified student loan professional.

You can find legal assistance, including advice on debt settlement and pursuing bankruptcy, with lawyers who specialize in student loans or with legal services in your state as listed by the National Consumer Law Center.

If your issue is with your servicer, contact the Federal Student Loan Ombudsman Group, which resolves federal student aid disputes. You can also file a complaint with the Federal Student Aid Feedback Center or the Consumer Financial Protection Bureau.

Avoid scammers

Legitimate student loan help organizations won’t seek you out with offers of debt resolution through unsolicited texts, emails or phone calls. Most importantly, you don’t have to pay anyone to apply to consolidate your debt, enter into an income-driven repayment plan or apply for Public Service Loan Forgiveness.

“The hard and fast rule is that applying for [consolidation and repayment] programs is free,” says Kyra Taylor, staff attorney focusing on student loans at the National Consumer Law Center. “I think when people realize what they can do for free, it makes it easier for them to spot scams.”

And don’t fall for any company that promises to forgive your student loans or wait for the government to do so — thus far, no executive action from President Joe Biden or legislation from Congress has come to pass.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

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Federal Student Loan Interest Rates to Increase July 1

Federal student loans will be more expensive for 2021-22 school year. Even so, borrowers will still see some of the lowest student loan interest rates of the past decade.

Interest rates for new undergraduate federal student loans will rise from 2.75% to 3.73% for 2021-22. The interest rates for undergraduate, graduate and PLUS loans are determined by results of the U.S. Treasury Department’s May auction of 10-year notes, according to New America, a public policy think tank. The Treasury sells 10-year notes to raise money.

PLUS loans, or direct Parent Loans for Undergraduate Students, are federal student loans that parents can receive to help pay for college. Graduate students can also receive PLUS loans.

Interest rates for the 10-year notes plunged last year when investors aggressively sought the safety of federal debt as the coronavirus pandemic unfolded. As a result, federal student loan interest rates fell to a historic low in 2020.

Since late last year, investors have moved their money away from federal debt, pushing interest rates back up, according to the Financial Times.

The federal student loan interest rate is set by adding the interest rate on the May 10-year note, 1.68%, to margins set by Congress. Lawmakers vote on the margins each year and while these haven’t yet been set for 2021-22, the margins aren’t expected to change from last year.

For undergraduate student loans, 2.05 percentage points will be added to the interest rate. For other loans, 3.6 points will be added for graduate student loans and 4.6 points to PLUS loans. Here are the higher rates for each type of federal student loan:

  • Undergraduate direct loans: 3.73%.
  • Graduate direct loans: 5.28%.
  • PLUS loans: 6.28%.

Although interest rates for student loans are increasing, rates are low compared with the last decade, when rates reached as high as 5.05% for undergraduate students in 2018-19.

Interest rates for federal student loans are fixed through the duration of the loan, so loans taken out before July 1 will still have this academic year’s 2.75% interest rate. Currently, under the first COVID-19 relief bill, federal student loan interest rates are at 0% and are in forbearance until October 2021.

Impact of the rise in interest rates

Borrowing $5,500 in federal loans for 2021-22 — the maximum loan amount for dependent first-year undergraduate students — for a standard 10-year term will cost $1,098 in interest with monthly payments of $55. That is $3 more a month and $301 more in total interest compared with the same loan taken out at this year’s rates.

The increase in interest rates will have a bigger impact on borrowers who take out PLUS loans given the higher interest rates on such loans. There are also no specific limits on the amount of a loan; rather, it is determined by the school’s cost of attendance.

If a parent borrows around the average for a PLUS loan, or $16,500, for a 10-year term at next year’s rate of 6.28%, the cost would be $186 a month and $5,762 in total interest. That’s $9 more a month and $969 more in total interest for the same loan this year.

Federal vs. private student loans

While federal student loan interest rates will increase next year, borrowers should still pursue and exhaust federal loans before turning to private lenders. Unlike private student loans, federal student loans don’t require co-signers and all borrowers receive the same interest rate.

Interest rates on private student loans are typically higher than those on federal loans and depend on a borrower’s credit history and term length. Private student loans aren’t included in any student loan forgiveness programs and are excluded from the current pause on federal student loan payments.

But students shouldn’t turn to loans until after they’ve filled out the Free Application for Federal Student Aid — the FAFSA — and heard back from their college about scholarships, grants and other aid that doesn’t need to be repaid.

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College, Interrupted: The Case for Going (Back) to School

A cautionary note for the high school classes of 2020 and 2021: Waiting to enroll in college decreases the likelihood you’ll ever attend or complete a degree.

It’s a valid concern for both cohorts. Due to the pandemic, undergraduate enrollment was down 2.5% in fall 2020 and down 4.5% for spring 2021, compared with the previous fall and spring, respectively, according to the National Student Clearinghouse Research Center.

There are also warning signs of an enrollment slump to come. The class of 2021 is lagging in completing the Free Application for Federal Student Aid, or FAFSA. The application is the gatekeeper for college financial aid and, as of April 2, 2021, completion is down 7% compared with applications completed by the same time last year. FAFSA completions are an indicator of enrollment for the upcoming academic year, says Bill DeBaun, director of data and evaluation at the National College Attainment Network.

“When you’re talking about the senior class that measures millions of students, you’re talking about many students with their postsecondary trajectory potentially altered,” DeBaun says.

Skipping out on college, delaying enrollment or not finishing a degree has consequences:

  • You’ll earn less if you don’t go.
  • If you don’t go soon, you’re less likely to go back.
  • If you start a degree but don’t finish, you’re more likely to default on any student loans you took out.

A gap year made sense for many high school graduates in 2020 and is appealing for 2021 grads, too, experts say. The pandemic resulted in an uneven college experience that may have included hybrid and virtual learning, regular COVID-19 testing and quarantines. And not every student was well-positioned — or had the broadband access — to learn virtually.

“We’ll probably be having this conversation 10 and 20 years from now, as to how this affected the next generation,” says Nicole Smith, research professor and chief economist at the Georgetown University Center on Education and the Workforce.

If you sat out from college because of the pandemic or are planning to, experts argue that you should reconsider. Here are three key reasons why.

You’ll earn more with a degree

So what if you delay or never go to college? Opportunity costs, mostly.

Getting a degree could mean earning nearly a million dollars more over your lifetime, according to data from the Georgetown University Center on Education and the Workforce.

Delaying enrollment for one year can cost a year’s worth of wages over your lifetime, which you never recoup, according to a July 2020 report from the Federal Reserve Bank of New York.

Earnings, no matter the education level, will vary by occupation, region, gender and race. But bachelor’s degree holders still earn, on average, 31% more in their lifetimes than associate degree holders and 84% more than those with only a high school diploma.

That’s not to say you can’t consider education alternatives — short-term credential and trade programs, apprenticeships and associate degrees are all viable options. Statistically, though, a four-year degree or higher is a stronger insurance for greater earnings over your lifetime.

For low-income students and students of color who statistically have less generational wealth, degrees are also the best vehicle for upward mobility, says Michelle Dimino, education senior policy advisor at Third Way, a public policy think tank. A recent Third Way study found that most bachelor’s degree programs net low-income students high enough wages to justify out-of-pocket costs.

“What we’re seeing is students who would most benefit from the socioeconomic benefits a college degree can provide are the least likely to be enrolling at this point in time,” Dimino says. “The biggest concern that we have for those students delaying enrollment is it might lead to permanently forgoing college.”

The longer the pause, the harder it is to finish a degree

According to federal data, there are millions of adult learners who don’t start college until they’re well into their 20s or older.

But you’re less likely to complete a degree if you delay: Nearly half of those who delayed enrollment left college without earning a degree, compared with 27% of those who didn’t delay, according to a 2005 report from the National Center for Education Statistics.

The further you get from high school, the less academic support and one-on-one encouragement you have to attend college, experts say. It’s also more likely you’ll get a job, start a family and have other income demands.

“There’s something about that window of 18 to 24; if you start out at that point, you’re likely to get to where you need to be,” Smith says.

You’re more likely to default on student loans if you don’t finish

Returning to college is especially important if you have student debt, as most students do. Without a degree, federal data shows, you’re statistically more likely to be late on payments and default. This outcome can lead to a damaged credit score, collection costs and wage garnishment.

Federal data shows that among a cohort of students who started college in 2003-2004 and defaulted on student debt, nearly half didn’t complete their education, while 10% finished a bachelor’s degree.

The situation is the worst for Black student borrowers: The Brookings Institution found that Black first-time college students default at a rate three times higher than their white counterparts.

How to pay for college if your family’s finances have changed

If you’re reconsidering your decision to delay or forgo college, first figure out the best way to pay.

Start by submitting the FAFSA as soon as possible to qualify for federal, state and school financial aid, including Pell Grants, scholarships, work-study and federal student loans.

If your family’s financial situation has changed due to the pandemic, request a professional judgment from your prospective or current school’s financial aid office. You’ll need to request a specific amount and submit documentation of why you need more aid, like confirmation of a parent’s unemployment or medical bills.

If there’s still a gap to fill, consider private loans.

Alternately, you could think about entering community college for a year or two, then transferring. Find out if the community college you’re considering has credit transfer agreements (known as an articulation agreement) with any four-year colleges you’re interested in attending.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

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This Time, the Stimulus Package Helps More College Students

In the third round of COVID-19 relief, college students and their families could see more money in their pockets than before.

The $1.9 trillion American Rescue Plan Act, signed by President Joe Biden on Thursday, provides students with immediate and long-lasting financial benefits, including:

  • Relief checks, even for dependent students.
  • Emergency financial aid grants from their schools.
  • Child tax credits for students who have children.

Students were largely left out of earlier relief bills. Connel Fullenkamp, an economics professor at Duke University, says that’s because students are overlooked by politicians.

Fullenkamp says he thinks the latest relief package could have a significant and much-needed impact on students. “We are not going to pay their tuition, but we can help defray some of the costs of living,” Fullenkamp adds.

Here are the details on what college students can expect from the relief package.

Parents of dependent students can get a stimulus check

In previous relief legislation, there was an age cutoff. Students 17 or older who were claimed as dependents didn’t qualify for a payment, which left out many high school seniors and college students. This time, they qualify; the money goes to the taxpayer who claims them.

If someone else claims you on their taxes, you are eligible for the same payment the filer gets. All household members included on a qualifying tax return get a check of up to $1,400. If you are a dependent, the person who claimed you will receive payment on your behalf.

The maximum you can receive is $1,400, but the amount will gradually decrease with higher incomes. Those with reported incomes of more than $75,000 for individuals, $112,500 for head of household and $150,000 for joint filers will receive diminished checks. If the person who claimed you makes more than the qualifying maximum, you won’t get a payment at all.

Independent students qualified for earlier relief, and do so again.

If you have a Social Security number, file your taxes independently and have an adjusted gross income of $80,000 or less — which is the qualifying maximum — you are eligible for payment. That adjusted gross income maximum increases depending on your filing status — $120,000 if you file head of household and $160,000 if you file jointly. Income totals are based on your 2019 or 2020 tax refund.

If you file independently, you will receive payment in the same manner you receive your tax refund, via direct deposit or physical check.

Checks are expected to start rolling out this month.

You could qualify for emergency aid from your school

The relief package provides nearly $40 billion in funding to colleges and universities. They’re required to spend half on students in the form of emergency financial aid grants to be distributed through Sept. 30, 2023.

It’s the largest pot of money allotted to students yet. In the original Coronavirus Aid, Relief and Economic Security Act, schools received $14 billion, while the second relief package provided $22.7 billion to colleges. Both packages required colleges to use half on grants for students.

The amount a school receives is based on factors around the numbers of Pell Grant recipients enrolled. Delivery of the emergency aid into students’ hands was largely left up to schools to decide. Some sent money to students automatically based on their eligibility for need-based aid. Other schools required students to apply for it.

What remains unclear is if this time the aid will be accessible to students with Deferred Action for Childhood Arrivals, or DACA, status and international students. Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators says she expects the Department of Education to issue guidance on this in the coming weeks.

Students who have kids might be eligible for more money

As part of the relief bill, parents will receive up to $3,600 a year per child through the child tax credit. Though there is support to make this credit permanent, this new provision is set to last only a year.

“Hopefully it’s going to keep some people afloat in terms of being able to continue their education and not have to stop out,” says Douglas Webber, associate professor of economics at Temple University. “Once you stop out it’s just so hard to come back.”

Lawmakers intend to distribute the sum through monthly checks starting in July. With this arrangement, parents will receive $300 per child for children below age 6 and $250 per month for children between 6 and 17. The remaining credit will pay out after you file taxes.

Unlike with the previous child tax credit, this one is fully refundable. That means even families without a tax obligation will qualify. But payments will phase out for those with a reported income of more than $75,000 for individuals, $112,500 for head of household and $150,000 for joint filers.

Like other measures in the relief bill, payments are based on your most recent tax return — 2019 or 2020.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

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