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President Joe Biden’s announcement regarding widespread student loan forgiveness freed an estimated 20 million borrowers from student loan debt, allowing borrowers to breathe a sigh of relief and begin thinking about their other financial goals. While political rhetoric has certainly picked up following the decision, there’s still reason to rejoice for the millions of Americans who can finally move forward, focus on other financial priorities and start making major life decisions such as whether or not to get married, launch a business or start a family. As the celebrating continues, it’s also important to create a plan and take advantage of this sudden windfall. Select spoke with Lauren Anastasio, director of financial advice and certified financial planner at Stash, a popular investing app, about the next steps that would be best for those who are now without student loan debt.
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What debt-free student loan borrowers should do next
Wednesday’s announcement comes on the heels of nearly 2.5 years of a federal student loan repayment pause and allows for one final extension through Dec. 31, 2022. Those who qualify within certain income limits and have less than $10,000 in student debt — or less than $20,000 for Pell Grant recipients — will now be free of their federal student loans. According to Anastasio, there is still one more important step needed to make it official: Make sure you get it in writing that your student loan debt has been paid in full. “You should receive a congratulatory letter from your servicer confirming that your loans have been paid off. Save this letter. You may receive it electronically or be able to access it through the servicer’s website, but you will want to have a copy for your records just in case,” Anastasio says. “After 60-90 days, you’ll also want to consult your credit report to see that all applicable loans have been updated to reflect that they have been paid and closed.” As you wait for your official documents to come in, it’s a good time to start coming up with a plan for that additional money you would otherwise have been putting toward your loans. “Take the time to think about what you want to make happen for yourself so you don’t lose track of the money and wind up spending it on things that aren’t meaningful to you,” said Anastasio. For example, don’t run out and lease a new car if you already have a vehicle that meets your needs. You’ll just be signing up for another form of debt when taking out a car loan or leasing a vehicle — and cars are considered a an asset that loses value over time. Here are three important things you should focus on doing next as your financial priorities shift beyond student debt. Replenish your emergency fund Anastasio recommends filling your emergency fund to the point where you’d have enough to cover three to six months worth of living expenses. This is a great first step since it helps to provide a financial safety net in case something unexpected arises, such as a job loss, costly car repair or housing fix. Consider stashing your emergency dollars away in a high-yield savings account so your balance can earn more interest over time than it would in a standard savings account. Some of our favorite high-yield savings accounts are the LendingClub High-Yield Savings Account, American Express® High Yield Savings Account and the Marcus by Goldman Sachs High Yield Online Savings.
LendingClub High-Yield Savings Learn More LendingClub Bank, N.A., Member FDIC Annual Percentage Yield (APY) 2.07%
Minimum balance No minimum balance requirement after $100.00 to open the account
Monthly fee None
Maximum transactions None
Excessive transactions fee None
Overdraft fees N/A
Offer checking account? Yes
Offer ATM card? Yes See our methodology, terms apply.
American Express® High Yield Savings Account Learn More American Express National Bank is a Member FDIC. Annual Percentage Yield (APY) 1.75% APY as of 8/31/22
Minimum balance Minimum balance to open is $0
Monthly fee $0
Maximum transactions Up to 9 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D
Excessive transactions fee $0
Overdraft fees $0
Offer checking account? No
Offer ATM card? No
Terms apply. American Express National Bank is a Member FDIC.
Marcus by Goldman Sachs High Yield Online Savings Learn More Goldman Sachs Bank USA is a Member FDIC. Annual Percentage Yield (APY) 1.70%
Minimum balance None to open; $1 to earn interest
Monthly fee None
Maximum transactions Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D
Excessive transactions fee None
Overdraft fees N/A
Offer checking account? No
Offer ATM card? No Terms apply.
Pay off high-interest debts Credit card debt has been on the rise as inflation continues to push consumer budgets even further. Now that your student loan debt is forgiven, you can prioritize paying down other high-interest debt instead. If you happen to have multiple high-interest debts, consider consolidating them into one concise payment by taking out a personal loan through an issuer such as PenFed or SoFi, which Select ranked among the best options for personal loans.
PenFed Personal Loans Learn More Annual Percentage Rate (APR) 7.74% to 17.99% APR
Loan purpose Debt consolidation, home improvement, medical expenses, auto financing and more
Loan amounts $600 to $50,000
Terms 1 to 5 years
Credit needed Good/Excellent
Origination fee None
Early payoff penalty None
Late fee $29
SoFi Personal Loans Learn More Annual Percentage Rate (APR) 7.99% to 23.43% when you sign up for autopay
Loan purpose Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses
Loan amounts $5,000 to $100,000
Terms 24 to 84 months
Credit needed Good to excellent
Origination fee None
Early payoff penalty None
Late fee None Terms apply.
If you want to focus on paying back your credit card debt with your newly freed up cash, consider transferring your balance to a card with an introductory 0% APR period which can be a good way to save even more money while paying back your balance. After you’ve opened the new card and transferred your balance, you won’t be charged any interest for the introductory period, which can be as long as 21 months. Select ranked the Wells Fargo Reflect® Card and the U.S. Bank Visa® Platinum Card as some of the best credit cards with intro 0% APR periods.
Wells Fargo Reflect® Card Learn More On Wells Fargo’s secure site Rewards None
Welcome bonus None
Annual fee $0
Intro APR 0% intro APR for 18 months from account opening on purchases and qualifying balance transfers. Intro APR extension of up to 3 months with on-time minimum payments during the intro and extension periods. 15.24% – 27.24% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate
Regular APR 15.24% – 27.24% variable APR on purchases and balance transfers
Balance transfer fee Introductory fee of 3% ($5 minimum) for 120 days from account opening, then up to 5% ($5 minimum)
Foreign transaction fee 3%
Credit needed Excellent/Good See rates and fees, terms apply.
U.S. Bank Visa® Platinum Card Learn More On U.S. Bank’s secure site Rewards None
Welcome bonus None
Annual fee $0
Intro APR 0% for the first 20 billing cycles on balance transfers and purchases
Regular APR 16.74% – 26.74% (Variable)
Balance transfer fee Either 3% of the amount of each transfer or $5 minimum, whichever is greater
Foreign transaction fee 2% to 3%
Credit needed Excellent/Good See rates and fees. Terms apply.
Start investing for your retirement If you’re one of the many Americans that haven’t been able to invest for retirement because of student loan debt, start by taking the same amount of money you would have been paying toward your loans and allow those dollars to work for you and your financial future instead. For example, let’s say your monthly student loan payment was $400. If you take that same $400 a month, open a Roth IRA and invest in an S&P 500 index fund over 20 years, assuming a moderate 8% return, you’ll end up earning more than $219,000 in tax-free money for retirement. If you bump that up to $500 a month over 30 years — which gives the power of compound interest more time to go to work — you’ll end up earning a whopping $679,000 for your retirement. It’s easy to open a Roth IRA through a low-cost brokerage or robo-advisor, usually within minutes, and get started on investment journey today. Here’s a look at some of our favorites:
Wealthfront Learn More On Wealthfront’s secure site Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts
Fees Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance
Bonus None
Investment vehicles Robo-advisor: Wealthfront Automated Investing IRA: Wealthfront Traditional, Roth, SEP and Rollover IRAs Other: Wealthfront 529 College Savings
Investment options Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks
Educational resources Offers free financial planning for college planning, retirement and homebuying Terms apply.
Charles Schwab Learn More Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One ® Brokerage Account. Automated investing through Schwab Intelligent Portfolios ® requires a $5,000 minimum deposit
Fees Fees may vary depending on the investment vehicle selected. Schwab One ® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus None
Investment vehicles Robo-advisor: Schwab Intelligent Portfolios ® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account ® (PCRA) Brokerage and trading: Schwab One ® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Investment options Stocks, bonds, mutual funds, CDs and ETFs
Educational resources Extensive retirement planning tools Terms apply.
Betterment Learn More On Betterment’s secure site Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For Betterment Digital Investing, $0 minimum balance; Premium Investing requires a $100,000 minimum balance
Fees Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has a 0.40% annual fee
Bonus Up to one year of free management service with a qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC
Investment vehicles Robo-advisor: Betterment Digital Investing IRA: Betterment Traditional, Roth and SEP IRAs 401(k): Betterment 401(k) for employers
Investment options Stocks, bonds, ETFs and cash
Educational resources Betterment RetireGuide™ helps users plan for retirement Terms apply.
Bottom line
While this week’s student loan forgiveness announcement is going to help millions of borrowers get back on their feet, it’s crucial to keep that financial momentum going forward. “If you simply remove the line item from your budget, the money will likely be spent on other things,” Anastasio says. “Instead of removing the monthly cost from your budget altogether, consider reallocating it toward a different debt or putting it in savings.” In other words, instead of using that portion of your money to pay off your student loans, you should now be using it to grow your net worth. Your future self will surely thank you for this.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.