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Preparing for Student Loan Repayments to Return

They’re baaaccccckkk! Payments on federal student loans, on pause since the spring of 2020, have now resumed. Needless to say, you need a plan. 

If you have absorbed your student loan payment into your regular spending, now is the time to wring it out. You must be able to identify right now the specific change that you will make in your spending habits to accommodate your student loan payment.

If your finances have deteriorated since you last made a payment, perhaps due to a loss of income and/or increased childcare costs, you must be proactive in addressing this situation:

  • If you were repaying your loan under the 10-year Standard Repayment program, now is the time to consider switching to an income-driven repayment plan, such as the new SAVE plan.
  • If you are already on an income-driven repayment program and your household income is less than what it was when you last made payments, go ahead and recertify your income immediately with your loan servicer. (You should also do this if your family size has increased, and no I am not referring to your pandemic puppy.) You may find that your recalculated payment is affordable, even within your new reality.
  • If you are still facing economic hardship such that resuming any payment will not be possible, contact your loan servicer and discuss options for a payment forbearance. Interest will usually accrue, however, this may be just the temporary breathing space that you need to avoid delinquency and default, which could have long lasting and potentially ruinous consequences. But to be clear: under the SAVE plan, your expected payment may be as low as $0. Forbearance should be your very last choice.

But what if your finances have actually improved since you last made a payment, and you are sitting on “excess savings”? Assuming that you are not seeking eventual loan forgiveness (for example, under the Public Service Loan Forgiveness program), extra payments could make a meaningful dent in your balance and make your student loan a thing of the past that much sooner. Of course, this only makes sense after you have taken care of the essentials: funded an emergency fund, eliminated high interest debt, and put your retirement savings on track.