Student loan debt can take a big bite out of your monthly budget. The average borrower owes $37,693, according to researchers at EducationData.org. The median monthly payment comes in at $250. When the pandemic hit in the spring of 2020, the CARES Act came through with some financial relief. This included a temporary pause in federal student loan payments and collections. Interest also stopped accumulating on these debts — all great news for cash-strapped Americans.
The deal was originally set to expire in September 2020 but has since been renewed multiple times. President Biden recently communicated that the final extension will expire on January 31, 2022. That means federal student loan payments are set to resume pretty soon. Here are a few simple tips for how to prepare.
1. Contact your student loan servicer.
Your first order of business is getting in touch with your student loan servicer. You’ll want to make sure they have your most up-to-date contact information so that they can reach you if need be. Now is also the time to clarify your payment amount and due date. This is important as failing to pay on time could result in a negative remark on your credit report, which could drag down your credit score.
Getting on the same page with your loan servicer is especially important right now since a number of big providers have announced plans to stop servicing federal student loans. As a result, the government will begin transferring millions of loans over to different servicers in the near future. The last thing you want is to miss an important notice. Staying organized here can make it easier to stay connected and enroll in autopay — doing so could potentially snag you a 0.25% interest rate reduction.
2. Make room in your budget.
Once you know what your monthly student loan payment will be, take a look at your spending plan to see if you’ll be able to easily accommodate it. If money feels a little tight with this new bill, revisit your budget and try to carve out some room for your student loans. This might include:
- Reducing or eliminating unnecessary bills
- Cutting back on discretionary spending
- Meal planning so you can eat out less
- Taking on a roommate or moving to reduce your housing expenses
- Carpooling or taking public transportation when possible
Expenses aside, you might also find ways to increase your income. Securing a part-time job or side hustle could unlock a steady stream of monthly income that you can direct toward your student loan payments.
3. Opt into an income-driven repayment plan.
One of the perks of having a federal student loan is that you may be eligible for an income-driven repayment plan. This benefit allows you to tweak your monthly payment so that it’s aligned with your current earnings. The goal is to determine a payment amount that’s more affordable. Your income and family size will both play a role here. The amount is typically calculated as a percentage of your discretionary income.
If your new student loan payment feels unreasonably high for your budget, odds are you’re going to be financially stressed each month — and that’s no way to live. Enrolling in an income-driven repayment plan can help ease the burden while still allowing you to chip away at your loan balance. When you’re on firmer financial ground, you can always begin paying more again. Treat it like a temporary safety net.
4. Consider refinancing.
Those who are feeling the squeeze of their new student loan payment might consider refinancing. This involves taking out a new private loan, then using it to pay off your outstanding student loan balances. At that point, you’ll have a new repayment plan. It’s a move that could land you a better interest rate and a potentially lower monthly payment. The better your credit score, the more likely you are to find a good deal. Most lenders require a minimum score of 670, according to NerdWallet.
That alone may be reason enough to move forward, but keep in mind that opting out of the federal loan program also means saying goodbye to some valuable borrower protections. This includes access to potential student loan forgiveness programs, as well as income-driven repayment plans. There are also certain situations where you may be able to pause your federal student loan payments — two examples include unemployment and enrolling in graduate school. Private lenders may not offer these perks.
In other words, federal student loans generally provide more leeway than privately held loans, so it’s something to think about. If you’re currently dealing with an economic hardship, contact your student loan servicer to see what options may be on the table. Doing so can help you keep your loans in good standing while you navigate a tricky financial time.
DailyPay provides instant access to your earned pay, making it that much easier to keep up with your bills and other monthly expenses. This includes student loans. With payments scheduled to resume in just a few months, now is the perfect time to use DailyPay to your advantage.
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