Student Loan Payments Are Starting Again — Here’s What You Need To Do ASAP

Dear Paco,

I, like many other student loan-burdened people, have not been paying my student loans during the years-long pause. I make enough to just get by and I was really betting on President Biden’s loan forgiveness plan coming through. Then the Supreme Court trampled all over that.

I don’t have a ton of extra income, and am trying to rebuild my savings after a few personal emergencies (see: a muscle strain requiring physical therapy, unforeseen car repairs, a bigger than usual dental bill) drained them.

I don’t qualify for any of the other student loan help that Biden did manage to push through, so I’m going to be paying up as of Sept. 1. How do I fit paying these loans (looking at hundreds of dollars a month) back into my life?

Sincerely,

Supremely Disappointed

Dear Supremely Disappointed,

This is a very frustrating moment for many student-loan-burned people; you’re not alone. While the loan pause gave so many people much-needed financial relief during the uncertainty of the last few years, resuming monthly payments can feel daunting. I think it’s especially painful given how many people had expectations that loan forgiveness was on the horizon, only to face the harsh reality that, for most, their debts will still need to be repaid. I hope despite your frustrations you can take a moment to appreciate that progress, although painfully slow, is being made. In the meantime, know that the discourse on student loan forgiveness can spark a larger push to examine the root issues within our educational systems, rather than just the symptoms.

For now, let’s address your personal financial situation by going over what you can do to get prepared to start paying again.

In the last few years, your student loan servicer may have changed. For example, Navient’s contract to service Federal student loans ended on December 31, 2021. If your loan servicer has changed, you should have been notified. 

It’s important to ensure your servicer has your latest contact details, including your email address, mailing address, and phone number so they can contact you regarding your payments and loan. Get logged in so you’re certain you have all your loan details and that all your contact information is accurate. 

Not sure who your servicer is? Go to StudentAid.gov, find your account dashboard and scroll down to the “My Loan Servicers” section. You can also call the Federal Student Aid Information Center at 1-800-433-3243.

Before speaking with your loan servicer, check out the loan simulator tool on the Student Aid website to get an early look at which plans you may be eligible for and estimates on how much your monthly payment will be across different plans. Compare the different payment plans in both the short-term (monthly payment) and the long-term (how long it will take you to pay off your loan and the total cost you’ll end up paying).

Exploring different repayment options can help you think about your finances from a long-term perspective. Even if, for now, you have to select a plan that optimizes a lower monthly payment so you can rebuild your emergency fund, looking at the other options can help give you perspective on the total cost of the loan. When you can compare how much money you’ll save and how much faster you’d get out of debt by paying more, this information may influence future employment or other significant financial decisions. 

Having as much intel as possible gives you everything you need to make an informed decision and create a plan. Understanding your loan in depth and using tools like the loan simulator allow you to engage in your finances actively. Instead of just passively accepting the default, you’re actively making strategic decisions to balance your current financial reality and your future financial goals and dreams.

Since you’ve described your financial situation as barely getting by and anticipate struggling to make your loan payments, consider an income-driven repayment plan. These types of plans were created to help borrowers facing financial hardship. Even though the Supreme Court thwarted President Biden’s push for loan forgiveness, you might still benefit from the changes rolling out via the new Saving on a Valuable Education (SAVE) plan. Under this new plan, the calculation for income-driven repayment will change to benefit borrowers and significantly reduce monthly payments for many. Although this part of the plan doesn’t take effect until July 2024, it will have a significant impact because borrowers will have more of their income exempted from the calculation. For some, it means payments will be cut in half or reduced to nothing at all.

There is another provision to the SAVE plan that is worth noting: the 12-month grace period of October 2023 to September 30, 2024, where borrowers that miss monthly payments will not be considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies. While this is a bit of relief, interest will still accrue, which means if you don’t make payments, your balance will grow. 

As you explore your payment options, look at how your payment fits into your monthly spending plan and ask yourself these questions: What are your essential monthly costs? What are your priorities? Where do you spend the most? What can you negotiate?

The long-standing and mostly excellent financial advice about reducing spending is to find ways to cut back on your most expensive line items. For most, that’s housing, transportation, and food — I know many of these things are simply expensive and have also increased significantly in the last few years. This is also why the advice — as out of touch as it may feel — makes perfect sense. If it feels right for you to consider relocating or finding roommates to save money, look into your options because it could make a significant difference in the long run. When it comes to trying to keep rising food costs from taking a big bite out of your monthly spending plan, look for sales or try other stores that sell groceries at a discount, like Grocery Outlet or something similar. Even living in Los Angeles, I’ve noticed a significant number of people have gone from a two-car to a one-car household. While that’s not an option for everyone, it is an example of bucking trends to reduce our consumption. That’s not to say cutting back on bite-sized expenses isn’t meaningful; it’s just that unless you have lots of them, it doesn’t feel like it will make as much of a difference as saving hundreds on a car payment, for example.

When making your monthly spending plan work, many roads lead to the same destination. Part of the challenge is finding which road works best for you. If you’re detail-oriented and have the disposition to track your expenses, try using a budgeting tool like Copilot, You Need a Budget, or Simplifi. If a loose spending plan is more your speed, try the split-the-check method of separating your non-essential and essential expenses into separate checking accounts. Another approach is to shift your efforts and focus on increasing your earnings via side hustles, looking for new jobs, or negotiating a raise. Remember that the method you choose may change over time. Find what works for you for where you’re at and edit as needed.

Before your loan becomes due again this October, practice paying your loan by transferring the monthly payment amount into a savings account in August and September. This will simulate how your finances will be impacted, while still taking advantage of the pause. I know there isn’t much time to do this, but it’s also a strategy you can deploy whenever you’ll be taking on a new expense or monthly debt payment. Think of it as a dress rehearsal before the big show. Run the simulation, and adjust accordingly. 

If you are still struggling to navigate repayment, consider leaning on professionals for help. The Federal Student Aid website can help direct you to counselors, and organizations like the Student Borrower Protection Center and the Institute of Student Loan Advisors are also helpful, reputable resources.

A multi-year pause on loan payments means lots of people are going to be reaching out to their servicer to get information. Don’t add more stress to your situation by waiting until the last minute. Get ahead of this. Get your loan details, and explore your payback options now so you have the time to navigate through these decisions calmly and not in a time-scarce state. 

Your friend in finance,

Paco