Here's how to prepare to start paying back your federal student loans when the freeze ends
Student loan payments are currently suspended, without interest, for most federal borrowers until 60 days after June 30.
A three-year pause on student loan payments will end this summer regardless of how the Supreme Court rules on the White House plan to forgive billions of dollars in student loan debt.
Below are some proposed tips to help you prepare when payments resume.
- Review your loan information: Gather all the necessary details about your loans, including the lender, loan balance, interest rate, repayment terms, and any other relevant information. Make sure you understand the specifics of each loan you have.
- Create a budget: Evaluate your income, expenses, and financial goals to create a budget that accommodates your student loan payments. Determine how much you can afford to allocate toward your loans each month while still meeting your other financial obligations.
- Understand repayment options: Familiarize yourself with the different repayment options available to you. Federal loans typically offer various plans, such as standard repayment, income-driven repayment, or extended repayment. Private loans may have different options, so contact your lender to discuss your choices.
- Explore loan forgiveness programs: Research loan forgiveness or repayment assistance programs that you may qualify for. Some professions, such as teaching, public service, or healthcare, offer loan forgiveness or repayment assistance programs. Check if you meet the requirements and how you can apply.
- Set up autopay: Consider setting up automatic payments for your loans. Autopay can help ensure you make timely payments, potentially making you eligible for interest rate reductions or other benefits. Check with your loan servicer or lender to set up this option.
- Communicate with your loan servicer: Stay in touch with your loan servicer to understand when the freeze ends and to discuss any concerns or questions you may have. They can provide guidance on repayment options, deferment, or forbearance if you’re facing financial hardship.
- Prioritize high-interest loans: If you have multiple loans, prioritize paying off the ones with the highest interest rates first. By doing so, you can minimize the overall interest you’ll pay over the life of the loans.
- Explore refinancing or consolidation: If you have multiple loans, you might consider refinancing or consolidating them into a single loan with a potentially lower interest rate. Research the pros and cons of this option and compare offers from different lenders before making a decision.
- Build an emergency fund: It’s wise to establish an emergency fund before you start repaying your loans. Having a financial cushion can help you manage unexpected expenses and avoid going into further debt.
- Stay organized: Keep all your loan-related documents, statements, and correspondence in a secure and easily accessible place. Make note of payment due dates and set reminders to avoid missing any payments.
According to NPR, here’s what to know to get ready to start paying back loans:
How should I prepare for student loan payments to restart?
Betsy Mayotte, President of the Institute of Student Loan Advisors, encourages people not to make any payments until the pause has ended. Instead, she says, put what you would have paid into a savings account.
“Then you’ve maintained the habit of making the payment, but (you’re) earning a little bit of interest as well,” she said. “There’s no reason to send that money to the student loans until the last minute of the 0 percent interest rate.”
Mayotte recommends borrowers use the loan-simulator tool at StudentAid.gov to find a payment plan that best fits their needs. The calculators tell you what your monthly payment would be under each available plan, as well as your long-term costs.
“I really want to emphasize the long-term,” Mayotte said.
Sometimes, when borrowers are in a financial bind, they’ll choose the option with the lowest monthly payment, which can cost more over the life of the loan, Mayotte said. Rather than “setting it and forgetting it,” she encourages borrowers to reevaluate when their financial situation improves.
What’s an income-driven repayment plan?
An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. It takes into account different expenses in your budget, and most federal student loans are eligible for at least one of these types of plans.
Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. If your income is low enough, your payment could be as low as $0 per month.
If you’d like to repay your federal student loans under an income-driven plan, the first step is to fill out an application through the Federal Student Aid website.
Talk to an adviser
Fran Gonzales, 27, who is based in Texas, works as a supervisor for a financial institution. She holds $32,000 in public student loans and $40,000 in private student loans. During the payment pause on her public loans, Gonzales said she was able to pay off her credit card debt, buy a new car, and pay down two years’ worth of private loans while saving money. Her private student loan payment has been $500 a month, and her public student loan payment will be $350 per month when it restarts.
Gonzales recommends that anyone with student loans speak with a mentor or financial advisor to educate themselves about their options, as well as making sure they’re in an income-driven repayment plan.
The Federal Student Aid website can help direct you to counselors, as well as organizations like the Student Borrower Protection Center and the Institute of Student Loan Advisors.
“I was the first in my family to go to college, and I could have saved money with grants and scholarships had I known someone who knew about college,” she said. “I could have gone to community college or lived in cheaper housing … It’s a huge financial decision.”
Gonzales received her degree in business marketing and says she was “horrible with finances” until she began working as a loan officer herself.
Gonzales’s mother works in retail and her father for the airport, she said, and both encouraged her to pursue higher education. For her part, Gonzales now tries to inform others with student loans about what they’re taking on and what their choices are.
“Anyone young I cross paths with, I try to educate them.”
Can I set up a payment plan for my student loans?
Yes — payment plans are always available. Even so, some advocates encourage borrowers to wait for now, since there’s no financial penalty for nonpayment during the pause on payments and interest accrual.
Katherine Welbeck of the Student Borrower Protection Center recommends logging on to your account and making sure you know the name of your servicer, your due date and whether you’re enrolled in the best income-driven repayment plan.
What if I can’t pay?
If your budget doesn’t allow you to resume payments, it’s important to know how to navigate the possibility of default and delinquency on a student loan. Both can hurt your credit rating, which would make you ineligible for additional aid.
If you’re in a short-term financial bind, according to Mayotte, you may qualify for deferment or forbearance — allowing you to temporarily suspend payment.
To determine whether deferment or forbearance are good options for you, you can contact your loan servicer. One thing to note: interest still accrues during deferment or forbearance. Both can also impact potential loan forgiveness options. Depending on the conditions of your deferment or forbearance, it may make sense to continue paying the interest during the payment suspension.
How can I reduce costs when paying off my student loans?
- If you sign up for automatic payments, the servicer takes a quarter of a percent off your interest rate, according to Mayotte.
- Income-driven repayment plans aren’t right for everyone. That said, if you know you will eventually qualify for forgiveness under the Public Service Loan Forgiveness program, it makes sense to make the lowest monthly payments possible, as the remainder of your debt will be cancelled once that decade of payments is complete.
- Reevaluate your monthly student loan repayment during tax season, when you already have all your financial information in front of you. “Can you afford to increase it? Or do you need to decrease it?” Mayotte said.
- Break up payments into whatever ways work best for you. You could consider two installments per month, instead of one large monthly sum.
Are student loans forgiven after 10 years?
If you’ve worked for a government agency or a nonprofit, the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-driven repayment plans cancel the remainder of a borrower’s debt after 20 to 25 years.
Borrowers should make sure they’re signed up for the best possible income-driven repayment plan to qualify for these programs.
Borrowers who have been defrauded by for-profit colleges may also apply for borrower defense and receive relief.
These programs won’t be affected by the Supreme Court ruling.