The day we’ve been anticipating has arrived: Student loan payments are set to resume in October.
Federal student loans and the accrual of interest were granted a six-month reprieve when the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted by Congress on March 27, 2020. This intervention was a response to the financial insecurity and unemployment that afflicted millions of Americans due to the COVID-19 pandemic. As the pandemic persisted, the payment moratorium was extended multiple times. Despite the Biden administration’s efforts to implement broad student loan forgiveness, the final extension of the payment pause concluded in September, with payments resuming in October.
The collective student loan debt in the United States amounts to a staggering $1.766 trillion, impacting more than 43.6 million individuals with an average debt load of $37,718. If you’re feeling apprehensive about the reinstatement of repayments, rest assured, you’re not alone. In the following sections, we will delve into the particulars of student loan forgiveness, the revival of payments, and the strategies you can employ to be well-prepared.
Biden’s Student Loan Forgiveness Programs
Earlier this year, the Supreme Court invalidated President Biden’s initial proposal for student loan forgiveness, which aimed to provide up to $20,000 in debt relief to millions of borrowers. However, there’s still hope. Subsequently, over 800,000 borrowers who have made payments for 20-25 years witnessed reductions or complete elimination of their loan balances through the Income-Driven Repayment and Public Service Loan Forgiveness programs. It’s anticipated that this number will increase to over 3.6 million individuals. If you think you qualify, you can explore these programs and reach out to your loan provider for additional information.
For those who don’t qualify for these programs, there’s no need to lose hope. Following the Supreme Court’s rejection of Biden’s initial student loan forgiveness plan, the administration initiated a “Plan B” that would offer more comprehensive debt relief to borrowers. However, implementing this plan involves a protracted legal process, which means it won’t be enacted until at least July 2024. In the interim, here’s how you can navigate the return of payments:
How to Budget for Your Student Loans
Reacquaint Yourself with Your Loans
Understanding the specifics of your student loans is pivotal to making informed financial decisions. Determine whether your loans are public or private, your prevailing interest rates, and your repayment alternatives. Being well-informed empowers you to manage your finances and detect any discrepancies.
Utilize a Budgeting App
Renowned management expert Peter Drucker once stated, “If you can’t measure it, you can’t manage it.” Budgeting apps, such as You Need a Budget (YNAB), offer comprehensive tools to track and organize your finances. Adjust your existing budget or create a new one to accommodate your impending student loan payments.
Schedule Payments Immediately
When organizing your budget, prioritize your essential expenses, including student loan payments. Allocate funds for these payments as soon as you receive your paycheck to prevent accidental expenditure elsewhere. Setting up automatic payments with your loan provider for the day following your payday ensures you never miss a payment.
Explore a Side Hustle
While seeking additional income might seem like a daunting task, part-time side gigs have become more accessible and popular. Opportunities range from online teaching to dog walking, or even driving for ride-sharing platforms like Uber or Lyft. A side hustle can provide extra income to make your student loan payments more manageable, but remember to prioritize work-life balance.
Make Extra Payments
If you find yourself in a position to contribute more than the required payments to your student loans, doing so can expedite your debt repayment and minimize interest costs. While this isn’t feasible for everyone, it can lead to substantial savings in the long run.
Considering Refinancing
Refinancing your student loans involves paying off your existing loans with a new lender offering a lower interest rate. This can significantly impact your financial situation, especially if you’re in the early stages of repayment. Not everyone qualifies for refinancing; typically, you need a credit score above 600 and a stable income that can cover your expenses and payments. If you don’t meet these criteria, you may require a co-signer to refinance. Remember that when you refinance federal student loans, they become private loans, and you lose access to federal loan benefits.
Additional Resources for Assistance
If you feel overwhelmed, numerous assistance options are available. Consider exploring programs like Federal Student Aid for undergraduate students, Public Service Loan Forgiveness for those working in the public sector, and employer-provided student loan repayment assistance, made available through the CARES Act. The National Consumer Law Center’s Student Loan Borrower Assistance site offers valuable information on repayment, assistance, and more.
This shift in the resumption of student loan payments may seem daunting, but with careful planning and consideration of available options, you can navigate this financial responsibility effectively.
