LOUISVILLE, Ky. (WAVE) — This week, the Biden administration extended the pause on federal student loan repayments.
Although this is good news for millions of people in debt, it is not a permanent solution.
Federal student loan debt affects millions of people across the country, and many in the Louisville area as well.
Shelby Vandagrift has just opened a new restaurant inside Logan Street Market. As she balances her business expenses, she also balances a pile of student debt, including a federal loan. This all adds up to around $800 per month.
“Which is like, pretty much what I pay like my rent and utilities and gas included, so it’s about the same amount as my living expenses,” Vandagrift said.
“It’s a $1.6 trillion problem across the country,” said Lamkin Wealth Management CEO Mark Lamkin.
He said there’s a reason student debt has become such an issue compared to just 20 or 30 years ago.
“Things have changed,” Lamkin said. “We didn’t have a pandemic to deal with. I understand the moral hazard of the government repaying student loans, and I understand that, but there are situations where it might be helpful.
Currently, federal student loan debt payments are frozen until the end of August. This debt could even be totally canceled for some who work in certain public sector industries.
Lamkin said it might not be that simple.
“So the downside of student loan forgiveness is that it’s 100% taxable,” he said. “So you can often find yourself in a bind if you had a debt of $50,000 to $60,000 and it’s forgiven? You’re going to have to pay taxes that year.
He said the best way to tackle student debt during the current break is to keep making those payments anyway, especially with the federal government looking to raise interest rates multiple times this year.
“So you might be looking at a 1-2% interest rate increase over the next two years on your student loan, which can net hundreds of dollars in payments,” Lamkin said. “So if you’re making those payments now when you’re not paying interest, paying that principal directly, make a plan for it.”
He suggested using an income tax refund or any raise to target that debt and get the most out of your money.
If anyone is preparing to start those payments again this fall, there is good news. The Ministry of Education allows everyone to put them back in order. Even if a person had past due payments, they should not be penalized.
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