How to Schedule Student Loan Repayment to Resume Repayment This October
The pause for federal student loans and interest ends in October , but are you ready? Given that 55% of borrowers are unsure if they will meet their payments later this year, you can make a plan now as there is no guarantee that student loan waiver will continue or debt forgiveness will be granted.
Rate what you can pay now
A lot has changed since the introduction of the student loan exemption, and this may include your income and how you spend your money. For example, you might have used money earmarked for student loan payments to fund your reserve fund or, like many Americans, to pay off high-interest credit card debt .
The challenge is now to make room again for minimum student loan payments, without allowing other higher interest debt to spiral out of control. Take a look at your bank accounts, list your expenses and income, and then use the StudentAid.gov loan simulator tool to reevaluate your repayment strategy (for more on how to use it, check out this Lifehacker post ).
If your situation has changed dramatically and you are not making any money, you still have non-pandemic options with your lender, such as prolonged abstinence or income- based repayment plans that link loan payments to your current income (you you might want to hold back from ditching these options until there is more clarity about President Biden’s intentions regarding loan forgiveness, even if getting a $ 10,000 or $ 50,000 debt waiver is a long road.)
Consider refinancing loans
Interest rates on loans are now low, so it might be a good option if you can take advantage of fixed rate refinancing from a private lender that will lower your annual interest rate and monthly payment. As Nerdwallet explains :
For example, suppose you owe $ 30,000 at an interest rate of 7% and a maturity of 10 years. Refinancing at a 3% interest rate – about the best you can count on – will save you around $ 7,000.
This should be done with extreme caution, however, as refinancing with a private lender will make it impossible for you to benefit from federal student loan protections, such as the income repayment plans described above. According to Consumer Reports , other federal protections not guaranteed by private loans include debt forgiveness based on your employment, government service, or permanent disability.
However, refinancing is a good option if you are financially secure, on your way to paying off your loan, have a stable job, and just want to finish paying off your remaining debt.
Consider deferring early payments
As we pointed out in previous communications, if your financial situation is stable, it may be best to postpone early payments until the moratorium ends in October. Consider these options:
- Set aside monthly payments to a savings account and then make a lump sum payment after the student loan moratorium expires. This way, you will have contingency cash and if there is a loan forgiveness, you will not overpay what you owe (for example, as mentioned above, money paid against the $ 50,000 balance would be wasted if this amount will be forgiven later by President Biden, however unlikely it may be).
- Consider putting some of that money into a retirement plan, especially if you don’t have one, assuming you can still make the minimum student loan payments when they start working again. Since retirement savings accumulate over time, and student loans tend to be low interest debt, you can actually get ahead by investing in both ( this Lifehacker details this ). The trade-off is that it will take longer to pay off the student loan.