Student Loan Payments are Back
After years of repeated student loan pauses, federal student loan payments are, unfortunately, back. You may feel angry or disappointed that the promised loan forgiveness didn’t pan out. Perhaps you are overwhelmed that you now have yet another expense to cover, amid all the rising costs associated with inflation. Or you’ve put student loans out of your mind for so long that you’re a bit fuzzy on the details of what you owe, and who you owe it to. And maybe you aren’t sure how to even find that information out.
All of those feelings are valid, however, ignoring the situation and hoping it goes away probably isn’t the best solution.
Key Federal Student Loan Updates
(as of September 2023)
As of September 1st, 2023, Student loan interest has started accruing again
Student Loan payments begin October 2023.
This article will focus on figuring out what you actually owe and how to make a plan to cover that new expense. In the next article, I’ll explore the new SAVE Direct Consolidation program.
It’s been so long, I don’t even know where to find my student loan information
If you haven’t made a payment on your student loans since March of 2020, you may not remember what your monthly payment was, or even who you were making payments to. Adding to the confusion, many federal student loans have been sold to other loan servicers in that time, so your loan might be held by a different company now. Depending on the type of loan you have, your monthly payment amount may have changed as well.
If your loan servicer has changed, they should have contacted you (via mail or email) with the updated details and account number. But if you have moved, or just weren’t paying attention to your mail or inbox, you may have missed the notification.
To find your current loan servicer (who you send your loan payments to), log into the Federal Student Aid website (studentaid.gov). Once you’ve logged in, you can find your servicer on the FSA Dashboard.
Then, go to your current loan servicer's website and log in (or create an account if it’s a new servicer). You can call your loan servicer if you have questions, or need your account number. Once you’ve logged in, you should be able to see all the important information related to your student loans.
Key Student Loan details to make note of:
What is my monthly payment?
What is my payment due date?
What is my overall remaining balance?
What is my interest rate?
What is my projected payoff date?
The answers to these questions will help determine if you want to keep making the standard payments, make a plan to pay more aggressively or explore other payment plan options.
If the monthly payment amount is something you can afford to fit into your budget, this is a great time to set up auto payments. Taking the 3 minutes to set that up now will ensure that you consistently make on-time payments, and have one less thing to worry about each month.
How can I afford to pay my student loans?
After 3 years without these payments, many people are struggling to figure out how to add this expense back into the budget. Having had the extra room in your budget, you may have taken on some new expenses or upgraded your lifestyle in ways that you are reluctant to cut now. Or maybe the lack of student loan payments was the buffer you needed to survive the effects of inflation. Either way, resuming student loan payments will be an unpleasant change for just about everyone.
Having a clearer picture of your cash flow will make it easier to come up with a plan for reincorporating your loan payments. With a better understanding of what you are currently spending money on, you can make more intentional decisions, to ensure you have enough available to cover the loan payments along with all of your other fixed costs.
One way to get an idea of where your money goes is to take a look at your credit card or checking account statements for the past 3 months. Another way to understand your spending is to actively track your expenses for the next month. You can keep a log via pen and paper, a spreadsheet, or with software like Mint, Tiller, or YNAB.
Looking at the list of recent expenses, are there any you could have done without? Are there subscriptions you forgot you were still paying for? If your new loan payments are $250 a month, are there some changes you could make that would free up that amount?
Perhaps the loan pause has allowed you to make progress towards other goals, like saving aggressively or contributing more to your retirement accounts. It can feel disheartening to slow down your progress, but if cutting expenses is not realistic, reducing your 401k contribution or your monthly savings amount is another option for freeing up enough to cover your student loan obligations.
What if I really can’t afford my new student loan payments?
While no one WANTS to make loan payments, for some, incorporating them into the budget feels like an impossible task. If that’s the case, you may want to explore Direct Consolidation Loan options, as they may help to lower your monthly payments. Reducing your monthly payments typically extends the length of your loan, which in some cases means you will end up paying more in interest over the life of the loan. However, in some cases, switching to an Income-Driven Repayment program can drastically reduce the amount you will owe over the life of the loan.
Additionally, Biden has approved an on-ramp period, which drastically reduces the repercussions of a missed payment. Between now and September 2024, if you miss a payment you won’t be considered delinquent and the missed payment won’t be reported to the credit bureaus. However, interest will still accrue during this time, so a missed payment may increase the overall amount of interest you will pay. If you can make your monthly payments on time, you absolutely should. But if you do miss one during this period, don’t panic.
What is a Direct Consolidation Loan?
A Direct Consolidations Loan is when you combine 2 or more federal student loans into a new Direct Consolidation Loan. Typically, this is done to reduce your monthly payments or to make you eligible for certain federal forgiveness programs.
This is different than refinancing a student loan, which means taking a federal loan and moving it to a private lender, ideally for a lower rate. Sometimes refinancing (going to a private lender) can make sense, as paying a lower interest rate means you will pay less in interest over time. However, a federal loan has a lot more potential flexibility, so it’s worth pausing before moving to a private loan, even if the interest rate is better. For example, only federal loans had the benefit of the payment pause for the past 3 years. Only federal loans have deferment options when experiencing specific hardships or when returning to school full-time. And, if a loan forgiveness program eventually gets approved, only federal loans will be applicable. That’s not to say moving to a private loan never makes sense, just that you want to carefully review the options to ensure you know what flexibility you are giving up.
The next article will break down Income-Driven Repayment plans, with an emphasis on the new SAVE plan. Sign up for the newsletter to get notified when the new articles come out.
