The Wait Is Almost Over
Any day now, the Supreme Court will rule on the legality of President Biden's student loan forgiveness program. Even if loan forgiveness goes though, forgiving up to $20K for eligible borrowers, millions will still have a student loan balance. Therefore, it is important to prepare for any eventuality.
Top Four Tips to Prepare for Student Loan Repayment
1. Refamiliarize yourself with your student loans.
You may have a new loan servicer. Throughout the pandemic, several large loan servers got out the federal student loan business. I acquired a new servicer towards the end of 2021, and when I looked at my balances, they felt "off." What I didn't realize until I revisited emails and online FAQs was that part of my loans remained with my original servicer Navient, and the others were transferred to Aidvantage. You don't want to be sorting out communication, billing, or balance discrepancy issues when payments start again. So, if you haven't visited any of your accounts over the three-year payment pause, this is the time to get reacquainted.
2. Review & boost your budget.
Review repayment plans, as they have changed, particularly the income-driven plans. What made sense for your budget prior to the pandemic, may no longer fit your financial circumstances now. Check out the U.S. Department of Education's website for the latest news.
Put your future monthly payments in a high-interest savings account. If you can afford to do this, it serves three purposes. First, you can accumulate interest - some online banks are offering interest rates over 5%! - on your payments prior to the official repayment date. Secondly, you will get in the habit of no longer seeing that money as "available." And lastly, it gives you a stress-free head start on your first payments. Note: This is my current approach now that I have a lower balance, exactly $20K in my Aidvantage account. However, when I had a balance well over $20K, I often made monthly payments in order to pay down the principal while interest was not accruing.
Pursue a raise, or higher paying job opportunities. If your budget needs a boost, this is a good place to start. Pursuing promotions put me in a good financial position to aggressively pay down my six-figure debt. So, if you have the experience and evidence to support a salary boost, then go for it! And despite recession news, the U.S. still has a robust job growth rate. Consider reaching out to your professional and social contacts for leads on new job opportunities.
Consider a side hustle. I listed this last because taking on one or multiple part-time jobs can be mentally and physically exhausting. It also robs you of valuable time you'd rather spend with your loved ones, or yourself. However, if you can monetize a skill (writing, graphic design) or hobby (baking, photography) that brings you joy, it will be less of an energy drain and potentially turn into a full-time gig.
3. Use deferment and forbearance sparingly.
These options can be a lifeline if you are undergoing financial stress. However, in most cases, interest will still accrue. The reason my approximately $60K balance doubled to $120K+ was because over a 10-year period, I heavily used deferment and forbearance options. The loan companies were more than happy to process those. Why? They knew that I would be paying significantly more over the life of my loans. That was a huge windfall for them and a wealth drain for me. So, please don't repeat one of my biggest mistakes and use these options sparingly.
4. Do not procrastinate.
Waiting until repayment is upon you is a dangerous financial move that could lead to late payments or defaults. Both items can show up on your credit report, driving down you credit score. This will make it harder to obtain the lowest interest rates for a car loan, or mortgage. It can even impact securing an apartment, or employment in certain fields.
I still recall seeing the negative marks I got on my credit report years ago due to late payments because I was "too busy" to pay attention to when my deferment or forbearance ended.
The underlying emotions behind procrastination are anxiety and fear. After a 3-year payment pause, it can be tempting to ignore the restart. But the best way to deal with negative emotions is to tackle them head on. And once you have a plan to address your student loans, anxiety and fear will have less power over you.
I'm not underestimating the challenge, and I realize everyone's situation is not the same. I had a six-figure balance, which is NOT average. The typical balance is in the $30-40K range. I was overwhelmed by my high balance and did my fair share of procrastinating. However, once I got serious about paying it off and came up with an aggressive 4–5-year plan (that I adjusted every year), I was less stressed. Eventually the promise of a debt free future became bigger than the balance itself. That's what hope can do for you.
Even an imperfect plan can make the repayment transition less stressful because you're now an active participant in your pay-off journey. You can do this!