The day we’ve dreaded is upon us: Student loan payments are coming back in October.
Federal student loans and accumulating interest were put on hold for six months when Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020. This was in response to COVID-19 forcing millions of Americans into financial uncertainty and unemployment, and as the pandemic continued to interrupt the world, the pause was extended multiple times. Despite the Biden administration’s efforts to implement widespread student loan forgiveness, the final payment pause extension ended this September, with the first payments due in October.
Student loan debt in the United States totals $1.766 trillion. Over 43.6 million people are saddled with student loan debt, the average of which sits at $37,718. So if you are worried about the return of repayments, you are definitely not alone. Ahead, we’re diving into what you should know about student loan forgiveness, the return of payments, and how you can best prepare.
What’s going on with Biden’s student loan forgiveness programs?
Earlier this year, the Supreme Court struck down Biden’s first plan for student loan forgiveness, which would have given up to $20,000 of debt relief to millions of borrowers. However, not all hope is lost. Since then, over 800,000 borrowers who have been making payments for 20-25 years have seen their balances either lowered or wiped out entirely under the Income-Driven Repayment and Public Service Loan Forgiveness programs. This number is expected to rise to more than 3.6 million people. You can learn more about these programs here and reach out to your loan provider for further information if you believe you qualify.
And if you don’t qualify for either of those programs, don’t give up just yet. As soon as Biden’s first student loan forgiveness plan was struck down, the administration started working on a “Plan B” that would offer more widespread debt relief for borrowers. Unfortunately, enacting this plan involves a lengthy legal process that wouldn’t see it implemented until at least July 2024. In the meantime, here’s how to handle the return of payments:
How to budget for your student loans
Get reacquainted with your loans
As with any financial task or decision, it is important to educate yourself on your specific situation and rights in relation to your student loan payments. Are your loans public or private? What is the interest rate? Understanding how your loan works and what your options are is the only way to feel confident that you are in control of your money and can identify if a mistake or miscalculation was made.
It’s time to dust off your login information for your student loan providers and figure out how much you owe and what repayment options are available. If you’re not sure who your provider is (and it may have changed during the pause!) you can log in to the government’s student aid website to find yours. Once you’re logged in, spend some time checking your balances, updating your contact information, and making sure you know exactly what’s going on with your loans.
Get a budgeting app
As the management expert Peter Drucker once said, “If you can’t measure it, you can’t manage it.” There is a large variety of budgeting and finance apps available to help you keep track of where your money is going, allowing you to see how you’re spending and where you can cut back. Budgeting for student loan payments can involve some shuffling around of expenses and luxuries, so apps like You Need a Budget (YNAB) can help you comprehensively track, manage, and organize your finances to ensure you stay on top of your loans.
If you already have a budgeting system you know like the back of your hand, it’s time to adjust it to account for these new payments. Are there areas you need to cut back? Do you need to shift some allowances around to make room for these new payments? Whether you don’t really budget or you religiously check your accounts on the daily, now is the time to really check in on your finances and plan accordingly.
Make your payment as soon as you get paid
When setting up your budget, it’s always a good idea to make sure your essentials are handled first. Now, alongside your rent, phone bill, and grocery budget (and any other necessities you might have), set aside your student loan payment as soon as you get paid so that money doesn’t mistakenly get spent elsewhere. Take it a step further by setting up automatic payments with your loan provider for the day after your paycheck hits your account. This is the best way to make sure you never miss a payment. Even the most organized, prepared people have things slip their minds.
Consider a Side Hustle
While simply finding another way to make money may seem like an annoying and often unhelpful piece of advice, part-time side hustles are becoming increasingly popular and accessible. From teaching classes online to dog walking to driving for Uber or Lyft, side hustles can be a great way to get a bit of extra money to make your student loan repayments more manageable. Having said that, paying student loans faster should not happen at the expense of work-life balance. Not everyone has the option of simply “working more,” and this route should only be taken if it fits your routine. If you decide a side hustle is the route for you, we’ve compiled a list of 15 different ways you can go about making an extra $1,000 a month.
Make extra payments when possible
If you are in a position to contribute more than your required payments to your student loans, this will help you pay off the full amount sooner and save on accumulating interest. This obviously isn’t an option for everyone, but if you do happen to have some extra income available, making extra payments now can save you quite a lot in the long run.
Should You Consider Refinancing?
Refinancing your student loans means that a lender pays off your existing loans and replaces them with new ones at a lower interest rate. This can make a real difference, especially if you are still early in your repayments, though not everybody qualifies for refinancing. In order to refinance your student loans, you will typically need a credit score above 600 and a stable income that will comfortably cover your expenses and payments. If you aren’t able to meet both of these requirements, you may need a qualifying co-signer.
You should consider refinancing your student loans if you find a lower interest rate that will help your situation. Refinancing doesn’t cost you anything, so if your current interest rates are high or your loans have high variable rates causing unpredictability in your payments, refinancing can be a good option. If your loans were taken out with a private lender, you should still consider refinancing for lower interest rates.
Remember, when you refinance federal student loans, they become private loans and you are no longer able to take advantage of federal loan benefits. Your student loans will have an entirely new contract with entirely new requirements and terms, and once refinanced, they can not be refinanced back into federal loans.
Resources for Further Information or Assistance
If you’re still feeling a bit overwhelmed, below, you’ll find a range of options for assistance and further information. While not everybody is eligible for all assistance options, these programs are a great place to start looking to understand and organize your path forward.
- If you are a currently enrolled undergraduate student, consider applying for Federal Student Aid programs like the Federal Pell Grant. In order to be eligible, you will need to prove that you have financial need, are a U.S. citizen or eligible non-citizen, and are currently enrolled in an eligible degree or certificate program, though other specific requirements may also be relevant.
- If you are employed by a federal, state, local, or tribal government or not-for-profit organization, look into whether you qualify for Public Service Loan Forgiveness (PSLF). The PSLF Program forgives the remaining balance on your direct student loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer. This means that after 10 years of making monthly payments, public service workers can qualify to have the rest of their debt wiped!
- Check out whether your employer offers student loan repayment assistance. As part of the CARES Act, employer-provided student loan repayment as a tax-free benefit can be offered under Section 127 of the Internal Revenue Code. Available through 2025, employers can contribute up to $5,250 per employee annually without raising the employee’s gross taxable income.
- Go to the National Consumer Law Center’s Student Loan Borrower Assistance site for more information on repayments, assistance, and everything in between.