How to prepare for the resumed payment of student loans: Federal student loan payments have been suspended for years. This pause will soon come to an end. As part of the relief offered during the Covid-19 pandemic, the payment pause began in March 2020 and was repeatedly extended, allowing borrowers to retain money in their pockets instead of making student loan payments.
The New York Times reported that the agreement between President Biden and House Speaker Kevin McCarthy to raise the debt ceiling stipulates that student loan payments will resume around September 1. Even without this provision in the debt ceiling agreement, the payment halt was destined to end sooner or later, as Biden had stated he had no intention of extending it.
Borrowers will likely have until the end of summer to prepare their finances for this new economic reality. However, many individuals have not accounted for student loan payments in their budgets for the past three years, and the change could be jarring. Here is
How to prepare for the resumed payment of student loans
1. Upgrade your details
It’s been long enough that you may have neglected some essential student loan information. Moreover, during the payment hiatus, a number of loan servicers ceased working with the Department of Education, so your loan servicer may have changed. “About a third of borrowers will be making payments through a different company than they were before the pandemic pause,” Money estimated.
As a result, the first step is to identify your loan servicer. If your loan servicer has changed, you should have received correspondence that you can review. Or, navigate to your account dashboard on StudentAid.gov and select “My Loan Servicers.” The Federal Student Aid Information Centre can be reached at 1-800-433-3243.
Additionally, you should enter into your account to ensure that your contact information is accurate. This includes your phone number, email address, and mailing address.
Check to see if your next payment’s due date is listed while you’re there. Consider setting up autopay or creating a reminder for yourself to ensure timely payment. “If you were enrolled in an automatic payment plan prior to the pandemic — that is, before March 13, 2020 — you must opt back in,” cautioned The New York Times. “Your servicer should contact you regarding this. If you do not respond, payments will not recommence automatically.”
2. Restructure your monthly spending plan
Adding student loan payments to your existing expenses could require additional planning and effort. The Wall Street Journal suggested taking the time to “find a budget method that works for you, such as tracking your spending for a month and assigning each expense to a broad category.” This can help you identify areas where you can save money, possibly enough to cover all or a portion of your student loan payments.
Consider resuming payments sooner rather than later if a review of your finances reveals that you already have budgetary room. Consequently, you can “take advantage of 0% interest while it lasts,” as stated by Money.
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3. Select a repayment method
Once you have an understanding of your current monthly income and expenses, as well as the amount of your monthly student loan payments, you can begin to consider your repayment plan options. Perhaps you are earning more money than before the pandemic, or perhaps you suffered a severe financial setback during those years. In either instance, there is probably a repayment option that suits your particular financial circumstances.
There are numerous payment options to consider. The New York Times explained that income-driven repayment plans, for instance, “base payments on your income and family size and may yield monthly payments as low as $0,” with the residual balance being forgiven after a certain number of payments. The standard repayment plan, meanwhile, is designed to help you pay off your debt in ten years, resulting in less interest accrual. According to the Times, Biden is also anticipated to introduce a new REPAYE plan that will “provide the lowest payment for the majority of borrowers.”
Consider utilising the loan simulator provided by StudentAid.gov to determine how various plans would affect your monthly and overall payments.
4. Create an emergency plan
If you suspect you will not be able to make payments when they recommence, it is preferable to address the issue now rather than ignore it.
Depending on your circumstances, the initial stage is to submit a request for economic hardship or unemployment deferment. These “are the best ways to postpone your federal student loan payments,” according to CNBC, because interest typically does not accrue on subsidised undergraduate student loans.
And if you do not qualify, you can also seek forbearance to extend your payment suspension. However, “interest will accrue and your balance will be larger when you resume payment,” CNBC warned.
5. Keep up with the headlines
Although the halt in payments is about to end, that does not necessarily mean that assistance is no longer available. If the Supreme Court permits the Biden administration to move forward with its debt cancellation plan, “millions of borrowers could see as much as $20,000 removed from their balances,” according to The New York Times. In addition, Pell Grant recipients and certain other debtors could receive an additional $10,000 deducted from their loan balance. It is anticipated that a decision will be made by the end of June, so keep your eyes open.
Since 2017, Becca Stanek has worked as an editor and writer in the area of personal finance. She has previously held positions as managing editor for investing and savings content at LendingTree, editor at SmartAsset, and staff writer for The Week.
