Payments on federal student loans were paused for forty-three months, beginning at the start of 2020 and lasting through September 2023. In May, the federal government announced that collections would resume on defaulted federal student loans.
Recent college graduates who have student loans should be prepared to start paying them back after their grace period ends. Here are some tips to help borrowers prepare for payments.
Review your budget
Look at your budget to see if there are any spending habits you might need to make to start including a new payment plan. Once your list of essential expenses is made, you’ll want to list out all non-essential spending and expenses – and be honest with yourself – eating is essential, eating out at a restaurant is not. If you find that your new payment will cause a strain on your monthly budget, you’ll want to take a hard look at what non-essential expenses you may need to cut.
Put the payment in savings
If you haven’t already, start putting the total monthly payment into a savings account to get used to the monthly expense. Not only could you possibly earn a small amount of interest on it, but you’ll be able to transfer over that “payment” more easily to your actual payment when it starts up. This approach is one way to reduce the “shock” to your budget when you prepare for a new monthly payment.
Set a payoff goal
There are loan-simulator tools available at StudentAid.gov that can help you find a payment plan that best fits your needs. The key is to pay attention to the long-term costs that come with each plan. Much like any type of debt, the longer your repayment period, the more you’ll pay in interest. Going with the lowest-monthly payment option may seem more doable depending on your budget, but it’s important to calculate the cost over the life of the loan before making a decision. This is when forgoing non-essential spending in order to pay a little extra money a month will benefit you in the long run.
Pay extra on the loan
If you get extra income through a second job, a bonus or tax returns, consider putting that toward repaying your loan. While it might be tempting to spend it on a dream vacation, consider how paying extra will help you in the long run. The same can be said for any other debt you may have.
Set up automatic payments
To avoid late fees and for peace of mind, set up automatic bill payments to ensure your repayment stays on track. You can set those up through your loan servicer or your bank. And if you were already putting aside that “payment” in another account in anticipation of your payment plan to begin, you could use that account to set up automatic payments. Don’t get too caught up in the “set it and forget it” rule, though, because you may want to reevaluate your ability to repay your loan as your financial situation improves.
Student Loan Borrowers Struggling with Payments
If you’re a student loan borrower who has been struggling to make your monthly payments, it’s important to take a closer look at your budget and research repayment options.
- If you have federal student loans, explore repayment plans at StudentAid.gov, including income-driven repayment plans.
- If you have a private loan, talk with a lender about refinancing or consolidation options.
- Build a monthly budget that prioritizes your student loan payment along with other essentials.
- Be honest with yourself about what is essential vs what are “wants.”
- Research loan forgiveness programs that are available for qualified borrowers.