How to Plan for Your Student Loan Payments to Resume This October

If you're among the 55% of borrowers who aren't sure if they'll be able to keep up with their loan payments this year, our guidance can help you make a plan.

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The pause on federal student loan payments and interest ends in October, but are you prepared? Considering that 55% of borrowers aren’t confident that they’ll keep up with their payments later in the year, you might want to make a plan now, as there are no guarantees student loan forbearance will continue or debt forgiveness provided.

Assess What You Can Pay Now

A lot of things have changed since the student loan forbearance was put into place, and that might include your income and how you spend money. For example, you might have diverted money earmarked for student loan payments to pad out your emergency fund, or, like a lot of Americans, to pay off high-interest credit card debt.

The challenge is to now make room again for minimum student loan payments, without letting other higher-interest debt get out of control. Take a look at your bank accounts, list your expenses and income, then use the StudentAid.gov loan simulator tool to reassess your repayment strategy (for more on how to use it, check out this Lifehacker post).

If your situation has changed drastically and you aren’t making any money, you still have non-pandemic options with your lender, such as continued forbearance or income-driven repayment plans that tie loan payments to your current incomes (you might want to hold off on these options until there’s more clarity on President Biden’s intentions on loan forgiveness, even if getting $10,00 or $50,000 in debt waived is a long shot).

Consider Refinancing Your Loans

Interest rates on loans are low right now, so this can be a good option if you can take advantage of a fixed-interest re-fi from a private lender that will lower your APR and monthly payment. As Nerdwallet explains:

For example, say you owed $30,000 with a 7% interest rate and 10 years on your repayment term. Refinancing at a 3% interest rate—roughly the best you could expect—would save you close to $7,000.

However, this should be done with extreme caution, as refinancing with a private lender will disqualify you from federal student loan protections, like the income repayment plans described above. Per Consumer Reports, other federal protections not guaranteed by private loans include debt forgiveness based on your employment, public service, or if you suffer permanent disability.

That said, refinancing is a good option if you’re financially secure, already on track to pay off your loan, have stable employment, and simply want to finish off paying your remaining debt.

Consider Holding Off on Early Payments

If your financial situation is stable, it might be a better option to hold off on early payments before the moratorium ends in October. Consider these options:

  • Set aside monthly payments in a savings account, and then make a lump-sum payment when the student loan moratorium expires. This way, you’ll have cash for emergencies, and if there is any loan forgiveness, you won’t overpay on what you owe (e.g., as mentioned above, money paid against a $50,000 balance would be wasted if that amount is forgiven later by President Biden, as unlikely as that may be).
  • Consider investing some of that money into a retirement plan, especially if you don’t have one, provided that you can still make minimum payments on your student loan when they start up again. Since retirement savings compound over time, and student loans are typically low-interest debt, you can actually come out ahead by putting money into both. The trade-off is that it will take longer to pay off your student loan.
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