The federal student loan payment suspension and interest freeze is set to expire in less than 90 days on January 31, 2022. The Department of Education has already begun to send mass emails informing borrowers that there will not be any additional extensions. This is it. If you’re slightly panicking and wondering how you’re going to start making payments again after a lengthy pause, you’re not alone.
Over 40 million Americans have benefited from the federal payment suspension and interest waiver that began on March 13, 2020 at the start of the COVID-19 global pandemic. Now that the time to resume payments is quickly approaching, it’s time to take a look at your overall finances so you can proactively plan ahead. Here are three things you can do to make sure you’re prepared and not caught off guard.
By the time payments resume in February 2022, it will have almost been two full years. Many Americans took advantage of the administrative forbearance to focus on other financial priorities and goals such as beefing up their emergency fund, paying down other debt, or simply covering their basic needs. Perhaps you suffered a job loss, changed careers, or picked up a side hustle. The reality is, your income and expenses might look vastly different than it did at the start of the pandemic. If you don’t have a budget, you can start by creating a zero-based budget, a budgeting method where you give every dollar you earn something to do. This means your income minus your expenses equals zero. Taking the step to create a zero-based budget allows you to see where you stand financially and what you have to work with on a monthly basis so you can develop a game plan for your money.
If you already have a budget, this would be a good time to revisit it to see if you can realistically fit your federal student loan payments back into your budget. If it looks like it will be a tight fit, you may need to adjust your budget. Are there any changes you can make such as canceling unused subscriptions/memberships? On the other hand, maybe you need to add things back into your budget such as transportation costs if your employer is planning to bring everyone back into the office next year. The goal is for you to consider all possibilities and adjust your budget accordingly.
You can take this recommendation one step further by pretending your student loan payments were starting this month and begin setting the monthly payments aside in a savings account. By putting money aside now for when payments begin again, not only will you get re-accustomed to life with federal student loans payments, but you can make the transition less painful.
If you have private student loans that don’t qualify for the current federal student loan payment suspension and interest waiver, refinancing may be a good option for you. When you refinance a loan, you replace the existing loan with a new loan that ideally has better terms than the one you had. A recent study conducted for The Pew Charitable Trusts found that more than two-thirds of federal student loan borrowers are not ready to resume their monthly payments. If you checked your budget and saw that you would struggle to make payments moving forward, refinancing could help you get a lower monthly payment on your private student loans.
Another benefit of refinancing is the possibility of getting a lower interest rate on your loan(s). Securing a lower interest rate could help you pay off your debt faster and pay less interest over the life of your loan. Over the past year rates have been at historical lows so if this is one of your goals, now may be the time to explore this option.
It’s important to highlight that if you refinance your federal student loans you would lose access to government protections and forgiveness programs, like forbearance and income-based repayments—so make sure you check your eligibility for these programs before you consider refinancing your federal loans. Refinancing your private student loans is certainly worth exploring today, especially if you have high or variable interest rate loans and could benefit from today’s historically low rates.
Part of preparing for student loan payments to resume is knowing what your options are if you are having financial difficulties. For example, you can make a request for economic hardship or unemployment deferment to postpone your payments if you’re unable to make payments at this time. You can apply for forbearance if you don’t qualify for either of those, but be mindful that interest will continue to accrue under this option.
Other options to explore include enrolling in an income-driven repayment plan if you expect your struggles to last longer or consolidating your debt if you want to make your debt more manageable. When you consolidate your debt, you combine multiple debts into one, thereby reducing the number of payments and interest rates you have to worry about.
Regardless of where you are today financially, there are steps you can take to make sure you’re ready come February 1st. Here’s your chance to get a head start!
Leo Jean-Louis is a first-generation Haitian-American author and financial educator. Following the death of his father at the age of seven, Leo spent the bulk of his years navigating life and learning about personal finance out of necessity. After his post of paying off $104,000 of debt in 12 months went viral on social media, he and his wife founded Freedom Is A Choice Movement LLC, a business created to teach millennials how to become debt free without being miserable in the process. In just 9 months, he created a debt payoff plan for individuals and families totaling over $4.45 million in his signature course The Debt $layers Bootcamp. His money tips and personal finance journey have been featured on Business Insider, Yahoo Finance, the Steve Harvey TV Show, CNBC, Black Enterprise, and Bankrate to name a few. Leo is a firm believer in the power of choice: The life you live tomorrow will be based on the choices you make today. Visit www.debtslayersbootcamp.com and www.instagram.com/leo.jeanlouis to learn more.
This guest post is written by Leo Jean-Louis, co-founder of Freedom Is A Choice Movement LLC. Any opinions, findings, and conclusions expressed in this article are those of the guest writer, and do not necessarily reflect the views of KeyBank. Our guest writer, Leo Jean-Louis, has promoted Laurel Road and received compensation in the past.
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