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Written by: GreenPathFinancial Wellness

Last updated: Jul 14, 2023

Given that the Supreme Court has rejected President Biden’s $400 billion student debt forgiveness plan, the three-year plus moratorium on student loan payments officially ends in the fall. The Court’s ruling blocked a program intended to cancel up to $10,000 worth of debt for some borrowers and up to $20,000 for Pell Grant recipients. Short of an act of Congress, loan payments that have been suspended since March 2020 are set to restart. Interest will begin to accrue on September 1, 2023, and payments will be due starting in October.

For those with significant student loan debt, it only makes sense to have become acclimated to having a bit more financial breathing room during the time when loans were frozen. But if you fall into this category and have concerns about how resuming payments could strain your budget, you should know that there are viable options that may offer you relief. Taking the following actions now will ensure that you stay on course, and depending on your situation, can potentially help you to reduce your debt, shrink your payments, and save you money overall:

First, confirm the details of your student loan account.

An important initial step is to log in to your student loan account to make certain that your loan servicer can find you and to ensure that you know the date when your payment comes due. Be sure to update your contact information in your profile on your loan servicer’s website and in your StudentAid.gov profile. Also review your auto-debit enrollment or sign up if you want to take advantage of this service.

Get into the habit now of allocating money toward your loan payments each month.

Some financial professionals tout the benefits of making payments on your loan before the pause ends — their reasoning being that the entire amount of your payments made during this time will be put toward your principal because of the 0% interest rate[JH1] . By reducing your loan amount, you can potentially pay off the loan faster and save money in the long term.

But another strategy that will get you into the practice of building the payments back into your budget is to put this money away in a savings account for the next couple of months. President of the Institute of Student Loan Advisors Betsy Mayotte favors this course of action, which allows you to earn a little interest on your money as you get back into the routine of apportioning these funds.

Either approach can help you adapt to making payments again, so choose the strategy that works best you and your finances. If you prefer to hold off on resuming student loan payments, A Savings Account with The Police Credit Union offers a competitive annual percentage yield (APY), no monthly fees and a low minimum balance to earn dividends.

Review your repayment plan with an online “Loan Simulator.”

On StudentAid.gov, you’ll find a loan simulator tool that can help you determine what repayment plan will work best for your needs and goals. It will calculate your monthly payments under several different plans, and provide you with their costs over the life of the loan. For more affordable payments, consider applying for an income-driven repayment (IDR) plan, which factors in your income, family size and expenses.

Why it can pay off to investigate an income-driven repayment (IDR) plan:

As the AP points out, most federal student loans are eligible for at least one income-driven repayment plan, which can often lower your monthly payments. In some cases, payments can be as low as $0 per month, but they are generally a percentage of your discretionary income. Each year, you must recertify your income to remain in the plan. You can find details on the different IDR plans including eligibility and complete an application here.

Find out if help is available through your employer.

While this clearly won’t apply to everyone, some employee benefits offer relief for student debt. USA Today cites Aetna, PwC  and Google as just a few of these. As the publication reports, Aetna matches employees’ U.S.-based student loan payments up to $2,000 a year for a lifetime maximum of $10,000 for qualifying loans, Google matches up to $2,500 a year, and the Big Four accounting firm PwC offers associates and senior associates up to $1,200 a year toward student debt.

Explore whether any special federal programs that would apply to you would offer more relief. If so, make certain to enroll.

Be aware that the federal government offers other student loan debt forgiveness plans for those who meet specific criteria. The Public Service Loan Forgiveness program provides cancellation after 10 years of regular payments for those working in a government agency or nonprofit, without imposing a cap on the amount. As the AP points out, there are also income-driven repayment plans that will cancel the remainder of a borrower’s debt after 20 to 25 years. In addition, those who have been defrauded by for-profit colleges may also be afforded relief by applying for borrower defense.

Keep in mind that if you do qualify for a debt cancellation program, it makes good financial sense to make only minimal payments, since the rest of your debt will be wiped out eventually. The College Investor recommends using an app like Chipper for identifying debt forgiveness programs for which you may qualify.  In addition, the app can also help you organize and pay down your loans.

Don’t forget about student loan repayment assistance programs that your state may offer.

In addition to what’s available through the federal government, 47 states and the District of Columbia offer state-sponsored repayment assistance programs. As USA Today points out, these programs tend to pertain to a type of industry or professional group (e.g., doctors, teachers, law enforcement, farmers). States may also offer loan forgiveness for those who agree to work in a location that has a high need for certain services. For those who reside in California, find “10 Top Options for Student Loan Forgiveness in California” at Student Loan Planner.

Enroll in autopay for cost savings.

By signing up for automatic payments, you can get a quarter of a percentage point trimmed off your interest rate. Auto-debit enrollment will also help keep you on track so you don’t accidentally skip payments that result in penalties and late fees.

What to do if you can’t find room in your budget to make your payments:

If you’re finding yourself too strapped to resume payments, there are several options to consider well before you find yourself at risk of missing payments. First, it may be helpful to speak to a financial advisor or counselor, who are available to anyone with student loans. Organizations such as the National Foundation for Credit Counseling (NFCC) and The Institute of Student Loan Advisors (TISLA) can be helpful resources to tap into for guidance.

If you have private student loans, or after exploring your various options, your payments are still too high, you might want to consider refinancing for a lower interest rate and a reduced monthly payment. In order to qualify for refinancing, you’ll typically need a credit score that is at minimum in the high 600s as well as sufficient income to pay your debts. But it’s important to recognize that if you refinance with a private lender, you will no longer be able to take advantage of federal programs such as income-driven repayment and loan forgiveness. For this reason, you should consider the ramifications of working with a private lender carefully before refinancing a federal student loan.

While borrowers sometimes question whether a personal loan might be a reasonable solution for paying student loan debt, using a personal loan for this purpose generally won’t be cost-effective, and can even be counterproductive. Personal loans are helpful for consolidating high-interest debt like credit cards, but they usually come with higher interest rates as compared with student loans. Personal loans also tend to have shorter repayment periods than student loans, which can make your monthly payments higher.

Beyond the costs, it can be difficult to get approved for a personal loan in order to pay off student loan debt. Under the Higher Education Act, lenders must comply with additional requirements in order to provide financing for educational expenses. As a result, many lenders won’t allow you to use a personal loan for this purpose. Another benefit of student loan refinancing versus using a personal loan for student debt repayment: eligible student loan interest can provide up to $2,500 in deductions from your taxes each year. However, you should be aware that student loans can be more difficult to have discharged through bankruptcy.

Finally, If you’re still in need of relief on your payments, you might consider talking your loan servicer to check into whether deferment or forbearance would make sense for you. While these aren’t the first options to explore, they are far preferable to delinquency or default. You can find some excellent advice on this in “Know How to Talk to Your Student Loan Servicer” from U.S. News & World Report.


The Police Credit Union cares about the financial health of its members. That's why we've partnered with GreenPath Financial Wellness to provide members with free budgeting and financial education resources. 

Learn More 

 

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