Christmas came early for millions of federal student loan borrowers courtesy of the federal government. While the federal student loan freeze was set to unfreeze on August 31, 2022, with payments restarting in February, President Biden pointed to the continuing “impacts of the pandemic” as the primary reason for keeping federal student loan payments, interest accrual, and collections on defaulted loans on pause.
So, for now, federal student loan borrowers may have 99 problems, but repayment isn’t one of them–at least until May 1.
Student loans are stressful and expensive, but do you know what’s more stressful and potentially more expensive? Not preparing to pay them back. Eventually, it’s going to happen, and it’s never too early to start planning.
You’ve got two choices: prepare or perspire come May. Follow these tips to help create an affordable student loan repayment plan.
Assess Your Financial Situation
Can you afford to make payments on your student loan(s) now? Take an honest look at your financial situation, including your monthly income and expenses. If you can make payments during this pause, set an amount you can comfortably contribute toward your loan balance each month.
One of the best ways to pay off student loan debt fast is by paying more than the minimum. If you’ve got extra money to spend, consider making payments now to take advantage of the 0% interest. These payments will shrink your balance before any interest gets added in May. If you decide to continue making extra payments after the freeze ends, make sure that each payment is applied toward the principal balance, not next month’s payment.
Besides saving money (and earning some interest on your savings), setting aside your regular student loan amount each month will help get you back into the habit of making payments. This strategy will also signal whether you can afford your payments regularly or if you may need to cut expenses in your budget.
If you struggle to make those “practice payments,” it may be a sign that you need to consider arranging a new payment plan. To avoid financial stress, explore alternative payment options, like income-driven repayment (IDR) plans. These affordable repayment plans often cap your monthly payment at a percentage of your income, reducing your monthly payments and extending repayment terms. If you earn below a set income limit or you’re not working, your payment could be as low as zero. Just keep in mind that extending your repayment timeline means paying more in interest because you’ve extended the life of the loan.
To learn more about additional student loan repayment strategies, as well as how they could help you, look into a student loan payment simulator.
Consider Refinancing
Federal student loans come with many advantages, but refinancing them may be just the thing that boosts your budget. With interest rates at record lows, you could lock in a lower rate and benefit from long-term savings. For example, let’s say you owe $30,000 on a 10-year repayment plan with a 10% interest rate. Refinancing to 3% interest would save you around $13,000.
While refinancing with a private lender can provide much-needed financial relief for many borrowers, you would lose the benefits that come with federal student loans, like income-driven repayment plans, potential student loan forgiveness, or future payment pauses.
Contact Your Provider
Besides financially preparing to restart your payments, you should mentally prepare to get back into the routine of paying your student loans on time and in full. If you haven’t made payments since March 2020, make some time to reacquaint yourself with the process.
Before the clock strikes 12 on April 30, 2022, log into the online account you used to pay your bill before the pandemic. If you don’t have an account, now would be a great time to create one! Make knowing your loan’s terms, including the interest rate, your expected monthly payment amount(s), and any due dates, a priority.
While federal student loan relief doesn’t end until May 1, your new payment date could start any time following that. Knowing how much you owe and when your first payment is due will make it easier to plan–so you won’t want to skip this step.
If you were enrolled in a direct debit plan, re-enter your banking information with your servicer and confirm your automatic payments. Surprise: your student loan payments won’t restart on their own. If you miss the first payment, don’t panic. Contact your loan provider as soon as possible to make repayment arrangements. Try not to make missed payments a habit. Several missed payments, or payments over 90 days late, will negatively impact your credit score.
To ensure you don’t overlook any upcoming information or payment reminders, update your contact information with your loan servicer. Stay on high alert for scammers. If you receive a call or letter from an unverified source about loan forgiveness, don’t provide any identifying information.
Let’s face it, most of us (if not all of us) won’t be overly excited about adding student loan payments back into our budgets in about three months. But with the right preparations and a plan to make sure your payments are affordable, you’ll be in a better position to seamlessly integrate them into your financial life.
