The U.S Department of Education has been allowing student loan borrowers to pause their payments interest-free since March of 2020. Currently, payments on your federal student loans are set to resume starting October 1st of 2021. While there is a chance that this deferral opportunity may be extended, my advice would be not to count on it. You might consider the following steps to prepare for this resumption:
- Assess your Budget
- If you do not have a budget, now would be a great time to get one started to determine your excess cash flow or start cutting back your spending in other areas to create the cash you need. Alternatively, if you allocated your student loan payments to a different spending category during the pandemic, you will need to determine how to get your budget back on track.
- Revisit your Loan Terms and Balances
- It’s important to understand the terms of your loan such as minimum monthly payments, interest rates, and outstanding balances to determine the most appropriate payback strategy. Studies have shown the right payment strategy, like paying additional principal every month on the loan with the highest interest rate, can save thousands of dollars of interest over the life of the loans. However, a behavioral technique can also be used to provide a sense of encouragement and accomplishment by paying down loans starting with the smallest balance first.
- Because a year has passed since you were last required to make student loan payments (and maybe even longer since you viewed the different repayment plans), your financial situation may have changed. Perhaps the repayment plan you were in no longer makes sense. Check with your loan provider ahead of time to explore your options. This will be especially important if you feel you might not be able to afford your payments.
- You will want to make sure your contact information, such as phone number and address are up to date on your loan servicer's website. Review any automatic payments you have in place and verify the bank account information. Lastly, you should also confirm that your automatic payments will restart once the payment suspension ends.
I'm sure most borrowers would rather avoid this issue until October 1st, but some legwork now might help you avoid a costly mistake that could stick with you for years to come. If it all seems too complicated or overwhelming, consider consulting with a CERTIFIED FINANCIAL PLANNER™ or student loan expert to assist you in determining an appropriate debt repayment strategy for your financial situation.
About the Author:
Breanna Stein, CFP® is an Associate Financial Advisor at Fullen Financial Group. She graduated Cum Laude from The Ohio State University with a Bachelor of Science in Consumer and Family Financial Services and a minor in Business Administration from the Fisher College of Business. During her time at Ohio State, she served as the president of The Student Financial Planning Association. Prior to joining Fullen Financial, Breanna worked for Ameriprise Financial, gaining meaningful industry experience. Breanna is originally from a small town in Northwest Ohio and now residing in the Columbus area. She is a member of the Financial Planning Association of Central Ohio as well as their NextGen chapter.
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