Millions of student borrowers have been able to put their loan payments on hold since March, but some may not feel prepared to resume payments after the relief expires.
For those in need, the break has given a lot more room to make ends meet. Others who have frozen their payment plans say it will give them an opportunity to replenish their savings and spend extra money.
More than 22 million borrowers on direct federal student loans have suspended their payments during this period, according to data analyzed by Mark Kantrowitz, editor and vice president of research at Savingforcollege.com. The discharge phase ends on January 1st, unless Congress acts.
Now many borrowers are trying to adjust their budgets or change their behavior to cope with the monthly payments again.
“As an advisor, I’m concerned,” said Luis Strohmeier of Octavia Wealth Advisors. “We’re not thinking about the impact this will have on people who have to start making payments again next year.”
So prepare yourself.
Double check your emergency savings
In addition to suspending payments, the Cares Act also suspended accrued interest on student debt of $ 1.5 trillion. This period allows borrowers to make progress on other goals, such as: B. the repayment of higher-interest debts or bank money in an emergency.
Now that loan payments are resumed, the ability to use that money to replenish emergency funds ends. Some have already prepared for it.
Chris Strong, a 26-year-old transportation engineer in Atlanta, said he was lucky enough to keep his job during the pandemic but took the opportunity to suspend his student loan payments. He wanted to put the $ 300 he paid each month into his fledgling emergency fund.
“I have my emergency fund where I want it to be,” he said. “My industry is pretty safe, but if for any reason I lost my job or was unable to work, I wanted to have saved enough to find my way around.”
Others who have not been able to prepare like Mr. Strong may have to do so. The coming months offer a window of opportunity to top up the savings.
Take a closer look at your cash flow
While some saved the money they otherwise spent on paying student loans, others saw pandemic-related expenses eat up the money they hoped to save.
Lauryn Williams, financial planner and founder of Worth Winning, recommends borrowers carefully review their monthly cash flow over the coming months. With a new budget analysis, you can more accurately assess where this money was absorbed – and reverse this behavior before December.
William Comstock stopped paying on his student loans this spring when he was between jobs. When he got a new job in August, he didn’t resume payments and planned to put the money into savings. Instead, the money went towards his usual monthly expenses.
“Something always comes up,” he said. “And that $ 130 is less noticeable.”
The next two months give these types of borrowers time to get back on track.
“Assess why you are not ready,” said Ms. Williams. “Make the strictest, most accurate budget that you have ever made in your life. You need to consider all expenses. Even if you go to the machine, keep track of it. ”
Explore other relief options
Once you determine how much money your current budget allows for student loan payments, you may still be falling short. Ms. Williams recommends looking for other options that could lower your payments, such as income-based repayment plans.
Be aware of the tradeoffs for options like loan refinancing, consolidation, deferred payments, and extended deferral. Ms. Williams recommends approaching these with caution: Such options are often linked to other requirements, such as a minimum credit rating, or have their own disadvantages, such as a longer interest rate run-up. When consolidating and refinancing, keep in mind that this may pull you out of the deferral period.
Schedule a call with your loan service provider to inquire about available paths for the future. If you do this well before December, you will have plenty of time to decide which choice is best for your situation.
Whichever option you choose, be realistic. Expecting a longer delay – or even complete forgiveness, depending on the outcome of the election – can only lead to disappointment and panic.
“Borrowers hope for a miracle,” said Kantrowitz. “But the student loan fee may not come in time.”
Write to Julia Carpenter at [email protected]
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