If $10,000 vanishes from your student debt, you may want to celebrate. But what does that mean for the rest of your financial life? Here's what you should do:
But what does that mean for the rest of your financial life?
The administration previously cancelled federal student-loan debt for more than 560,000 defrauded borrowers who attended the now-defunct Corinthian Colleges. The government cancelled $5.8 billion, in the Education Department’s largest single loan discharge. There are winners and losers in this debate. Love it or hate it, Biden’s announcement on Wednesday means that the financial landscapes for millions of people are now poised to change. It may change them completely, or it may be “a drop in the bucket.”Household budgets Financial planner Savon Gibson has already been talking to clients about what happens to their budgets if they qualify for the cancellation of $10,000 of federal student-loan debt.
For people who have been putting money aside — and who are likely already inclined to pay debts and save — Gibson said they may decide to put the lump sum towards long-term goals, like retirement accounts or extra mortgage payments. Credit scores are supposed to offer a glimpse at how reliable a person is at repaying their debts, but McClary said it’s not a given that suddenly having less student-loan debt automatically leads to a better score.
“Given the uncertainties, it’s too early to say how individual consumers’ credit would be impacted,” said Margaret Poe, head of consumer-credit education at TransUnion TRU, +1.35%, one of the three major credit-reporting companies. Taxes Typically, cancelled debts snuff out re-payment obligations to the lender, but they spark a tax obligations to the Internal Revenue Service. That’s because the IRS generally views the amount of cancelled debt as income.
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