Student loan repayments in the United States are starting again this month, October 2023, after a nearly three-year pause due to the COVID-19 pandemic.
The Department of Education estimates that there are over 43 million borrowers with federal student loans. The average borrower owes over $37,000 in student loan debt.
The resumption of student loan repayments will likely impact borrowers’ finances significantly. Many borrowers have been struggling to make ends meet during the pandemic and may have difficulty resuming their payments.
If you’re one of those who will be starting repayments this month, here’s what to do.
Understand Your Loans
The first step in mastering the art of effortless student loan repayment is understanding what you’re dealing with. Before you can conquer your student loans, you need to know them inside and out.
Here are some keys to consider:
- Know Your Loan Types: Familiarize yourself with the types of loans you have, whether federal or private. Each type may come with different terms and conditions.
- Interest Rates: Understand the interest rates on your loans. Some loans have fixed rates, while others are variable. Knowing this helps you prioritize which loans to pay off first.
- Grace Periods: Determine if you have a grace period after graduation before payments are due. Use this time to plan your repayment strategy.
- Loan Servicer: Know who your loan servicer is and how to contact them. They can provide information about your loans and assist with repayment options.
Create a Budget and Stick to It
Creating a budget is one of the most effective ways to make paying off student loans easy. A budget helps you manage your finances, allocate funds for loan payments, and ensure you’re not overspending in other areas of your life.
Here are some budgeting tips:
- Track Your Expenses: Use budgeting apps or spreadsheets to record your income and expenses. This will help you identify areas where you can cut back.
- Allocate Funds for Loan Payments: Make student loan payments a non-negotiable part of your budget. Treat them as a fixed expense, just like rent or utilities.
- Emergency Fund: Build an emergency fund to cover unexpected expenses so you don’t have to dip into your loan payments.
- Cut Unnecessary Expenses: Evaluate your spending habits and identify areas where you can cut back. This could be dining out less, canceling unused subscriptions, or finding cheaper alternatives.
- Pay Yourself First: Not into budgeting? The Pay Yourself First philosophy is a no-budget way to build wealth and stay out of debt that works for many millionaires.
Explore Loan Forgiveness and Repayment Plans
The government offers various forgiveness and income-driven repayment plans that can make paying off student loans more manageable. These programs are designed to align your monthly payments with your income, making them more affordable. Some options to consider include:
- Income-Driven Repayment Plans: These plans calculate your monthly payment based on your income and family size. They include Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
- Public Service Loan Forgiveness (PSLF): If you work in a qualifying public service job, such as government or non-profit work, you may be eligible for loan forgiveness after making 120 qualifying payments.
- Teacher Loan Forgiveness: Teachers who work in low-income schools or educational service agencies may qualify for loan forgiveness after five years of service.
- Loan Consolidation: Consider consolidating your federal loans to simplify repayment and potentially lower your interest rate.
Automate Your Payments
One of the easiest ways to ensure you never miss a student loan payment is to set up automatic payments. Most loan servicers offer this option, which can be a game-changer for your repayment journey. Here’s why automated payments are beneficial:
- Never Miss a Payment: Automation ensures that your payments are made on time, reducing the risk of late fees or damage to your credit score.
- Convenience: You don’t have to worry about remembering due dates or manually making payments each month.
- Potential Interest Rate Reduction: Some lenders offer interest rate reductions as an incentive for setting up automatic payments.
Use Windfalls Wisely
Windfalls, such as tax refunds, work bonuses, or unexpected gifts, can significantly boost your student loan repayment efforts. Instead of splurging on luxury items, use windfalls to make extra loan payments. Every extra dollar you put toward your loans can significantly reduce your overall debt and the time it takes to pay them off.
Side Hustles and Extra Income
In today’s gig economy, there are numerous opportunities to earn extra income outside of your regular job. Whether freelancing, pet sitting, or selling crafts online, dedicating a portion of your side hustle income to student loan payments can accelerate your debt-free journey.
Reward Yourself Along the Way
Paying off student loans doesn’t have to be all work and no play. In fact, rewarding yourself for hitting milestones along the way can make the process more enjoyable. Set up a system where you treat yourself to something special every time you pay off a significant portion of your loans. It could be a weekend getaway, a new gadget, or a fancy dinner – whatever motivates you to stay on track.
Seek Professional Guidance
If you’re feeling overwhelmed by your student loans or unsure about the best repayment strategy, don’t hesitate to seek professional guidance. Financial advisors and loan counselors can help you create a customized plan that aligns with your financial goals.
Stay Positive and Persistent
Finally, remember that paying off student loans is a marathon, not a sprint. It may take several years to become debt-free, but you can do it with determination and the right strategies. Stay positive, celebrate your successes, and keep your eye on the financial freedom you’ll achieve when those loans are finally paid off.