How to Prepare for Student Loan Repayment

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If you’ve been enjoying the temporary pause on student loan payments — along with the 0% interest accrual and the stop on collections for loans that are in default — you may be wondering what happens when the pause comes to an end.

Generally speaking, you should expect your payment and due date to be the same as they were before the pause began, said Mark Kantrowitz, leading expert on student loan debt and author of “How to Appeal for More College Financial Aid.”

There’s still some uncertainty about when exactly the pause will end. As of the time of publication, the suspension of student loan payments will continue until 60 days after one of two things occurs: President Biden is able to implement his student debt forgiveness program or the Supreme Court resolves the questions around its legality. If things remain at a stalemate on June 30, 2023, payments will start back up again 60 days after that date.

Whichever eventuality comes to pass, borrowers have a bit of time to prepare before payments commence. If you’re among the 26 million Americans whose loans have been on pause, here are some simple steps you can take now to make things easier down the line.

How to Find Your Student Loan Servicer

If you’re not sure which student loan servicer manages your loans, visit the dashboard for more information. It may be a good idea to double-check your servicer regardless, because there are changes underway that will affect many student loan borrowers.

Some servicers, including FedLoan Servicing (which services public service loan forgiveness [PSLF] loans), Granite State Management and Resources, and Navient, phased out of federal loan servicing at the end of 2021.

Make Sure Your Contact and Bank Information Are Up to Date

Once that 60-day countdown to payment restart begins, you will receive at least six notices from your loan servicer about the restart of repayment, according to Kantrowitz. There will be no missing what your due date and payment amount will be.

That’s why it’s particularly important to make sure that your loan servicer and both have up-to-date contact information so you receive those notices promptly.

The past three years have been eventful for many people — you may have moved, changed jobs, or moved your money to a different bank. So make sure any relevant details are reflected in your student loan accounts.

“Your payment is still due even if you don’t know, and even if you don’t get a coupon book, statement, or one of those half-dozen notifications,” Kantrowitz said.

Sign Up for Autopay

Kantrowitz recommends that borrowers sign up for autopay, where monthly payments transfer automatically from your checking account to your loan servicer.

“With all the potential confusion with the restart of repayment, it’s a good way of ensuring that you don’t miss a payment. You’re more likely to miss the very first payment than any other.”

Setting up autopay is a simple way to avoid the hassle and expense of late fees and interest. Kantrowitz pointed out it also has the bonus benefit of reducing your interest rate by a quarter of a percentage point.

If you were previously signed up for autopay, it may not restart automatically when payments restart. If you’d like to re-enroll in autopay, look out for an email from your loan servicer asking whether you want to keep your autopay status when payments resume.

Prepare Your Budget for Your Payments to Restart

You’ve probably gotten used to having a bit more cash in your checking account each month. However you’ve been using those extra funds, whether it’s to build up your emergency savings, pay down credit card debt, or dine out a bit more, now is the time to adjust your monthly cash flow to make space for your student loan payments.

“The first thing I would suggest doing is a descriptive budgeting exercise, where you track your spending for a month,” Kantrowitz said.

Make note of every expense throughout the 30 days, using a spreadsheet or a budgeting program, like Quicken or Mint, to stay on track. Categorize the expenditures in broad segments, like food, housing, transportation, medical expenses, and entertainment, and then tag them as either mandatory or discretionary. If you learn that you’re spending $500 a month on eating out, the next time you want to head to a restaurant, you might hesitate a bit.

Receiving stimulus checks or a raise during the pandemic while you didn’t have to make your monthly loan payments may have caused a boost in your spending, conscious or not. 

“People have a tendency to increase their spending to consume all available money,” Kantrowitz explained. “So you need to figure out where you’re going to carve out the money to make the payments on your student loans.” 

The right savings approach will be different for everyone, but it could come from cutting discretionary spending or increasing your income by asking for a raise or taking on a side gig.

What to Do if You’re Worried About Being Able to Make Your Payments Once the Pause Ends

If your circumstances have changed during the pandemic and you think you might not be able to afford your prior monthly payment, don’t panic. There may be options to continue a student loan pause in your own personal situation, although your loan may continue to accrue interest.

You may be eligible for a deferment if you’re dealing with economic hardship, if you’re enrolled in school at least half time, or if you’re unemployed, as well as other reasons. For many types of loans, interest will not accrue on the loan during the deferment period, which can last up to three years, depending on the type of deferment.

Another option is to apply for a forbearance if you’re having trouble making your monthly payments due to financial issues, medical costs, or other reasons your loan servicer deems acceptable. During a forbearance, interest will continue to accrue on your unpaid loan balance. Forbearances are often limited to three years.

No matter what you do, don’t just stop making your payments, which will put your loans into default.

Deferments and forbearances aren’t ideal, but they’re better than default,” Kantrowitz advised. 

A longer-term solution for unaffordable loan payments is choosing a different repayment plan.

Reevaluating the Payment Plan That’s Right for You

The standard repayment plan for federal student loans is 10 years of fixed payments. It’s the plan with the shortest repayment period, which will save you money in interest over time.

But life has changed for a lot of people over the last three years. If your monthly payments on the standard plan are large compared to your monthly income, another plan option might be the right fit for you.

There are four types of income-driven repayment plans

  • REPAYE Plan: Most people will pay 10% of their discretionary income.
  • PAYE Plan: Most people will pay 10% of their discretionary income, and always less than their standard repayment plan would have been.
  • IBR Plan: If you had no outstanding student loans on July 1, 2014 or after, you’ll pay 10% of your discretionary income. If you did have outstanding loans on or after that day, you’ll pay 15% of your discretionary income. Either way, your payment won’t exceed what your standard repayment plan payment would have been.
  • ICR Plan: Most people will pay 20% of their discretionary income or what you would pay on a 12-year, fixed-payment plan based on your income, whichever is less.

If you were already on an income-based repayment plan, what can you expect when the pause comes to an end?

“For most borrowers who are in income-driven repayment plans, their monthly payment will not change,” Kantrowitz said. “And that’s because the payments are based on your income as opposed to the amount you owe.”

Think About Socking Away Your Monthly Payment Amount Starting Now

Depending on when things resolve at the Supreme Court, it could be a few months before the pause ends. Kantrowitz recommended that borrowers start setting aside their monthly payment amount each month starting now to prepare for when repayment starts again officially. But rather than sending it in to your student loan servicer, put it in a high-yield savings account so that it can earn a few percentage points of interest.

“Start pretending that you’re in repayment,” he suggested. “Now, you may want to ease into it, like setting aside a third of your payment amount the first month, two-thirds the second month, and the full amount after that.” Cutting back a little at a time could make it easier.

Setting aside this money will help you adjust your budget in advance, as well as leave you with a chunk of cash you can use to bulk up your emergency savings, pay down credit card debt, or, of course, make a lump sum payment toward your loans when repayment starts again.

A good place to start:

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