As Covid-19 continues to impact the US economy, several of my best tips for April 2021 involve managing debt in uncertain times.
The government created several temporary programs to help borrowers in need. These same programs also provide an opportunity for those in more secure positions.
Additionally, we are at the start of tax season. There are a couple of moves borrowers can make right now to make April a little less painful.
Tip #1: Keep an Eye Out for Student Loan Forgiveness
This month I’m suggesting that all federal student loan borrowers prepare for the possibility of student loan cancellation.
It is far from a certainty, but there have been two major changes in the last week.
- President Biden is now seriously considering issuing an executive order forgiving some student loan debt.
- In the next few weeks, we will have even more clarity on the situation.
With federal interest rates currently set at 0%, there isn’t any harm to sitting back and seeing how the next month develops. Next month we may have a realistic timeline for some debt cancellation, or we may not for certain that it won’t be happening during the Biden presidency. Either way, this is a situation worth monitoring closely.
For a detailed explanation on the current status of federal loan forgiveness, check out this article.
Tip #2: Ask for a Refund on Your Previous Federal Payments
This tip is a continuation of the previous one.
If you made unrequired payments during the interest freeze, you might be able to get a refund for that payment.
Getting a refund only to return the money in eight months may seem like a waste of time. For many borrowers, it would be a waste of time.
However, having extra money in reserve, even if only for a short period, could be significant. If you are a couple of bad breaks from dire financial circumstances, getting the refund is worth the effort.
Tip #3: April is Tax Time
April 15 is tax day. Even though the tax deadline was officially moved to May 17 this year, millions of Americans will be filing this month.
Student loan borrowers get a small deduction for student loan interest paid. However, the student loan impact on taxes goes far beyond a single deduction.
Borrowers on Income-Driven Repayment Plans like PAYE or IBR need to think about if they want to file jointly or separately.
Those working on student loan forgiveness can utilize my favorite student loan hack to save extra money for retirement, lower their taxes, lower their student loan bills, and get more student debt forgiven.
The Student Loan Planning and Tax Strategy article now includes changes for 2020 tax returns.
Tip for PSLF Borrowers:
I think tax season is a great time to do a yearly checkup on PSLF progress.
If you make a habit of certifying your employment each tax season, it will never fall through the cracks.
Tip #4: Start Thinking About the Repayment Restart this Fall
We are still about six months away from federal student loan payments resuming.
However, when that day comes, borrowers will have a really hard time calling their servicers and getting help. They estimate that in one month they will get more calls than they normally receive in a year.
Combine that with the fact that servicers laid off staff at the beginning of the pandemic and you have the ingredients for a very difficult situation.
Borrowers that plan ahead and get their questions answered in advance can avoid the mess.
Tip #5: Now is a Great Time to Refinance Private Student Loans
For nearly a year, I’ve been telling borrowers not to refinance their federal loans. The big benefit of refinancing is getting lower interest rates, and no refinance company can beat the 0% offered on federally-held student loans.
The refinance companies have been feeling the pressure. With fewer borrowers looking to refinance their loans, competition has gotten intense. As a result, interest rate offerings have been very aggressive, which means lower rates for borrowers.
I know that many borrowers like to opt for shorter-term loans with lower interest rates, but if I had to refinance my private loans right now, I’d select a 20-year fixed-rate loan.
Here again, I tend to be conservative and prefer flexibility. A longer loan means a slightly higher interest rate, but much lower minimum monthly payments. However, borrowers can always pay more than the minimum required. The benefit of a low minimum is the protection it offers in lean months.
At present, the following lenders offer the lowest rates on 20-year fixed-rate loans: