More than 50 million student loan borrowers will once again be required to make payments toward their student loans, including 41 million federal student loan borrowers, starting sometime in the summer of 2023.
When exactly student loan repayments will resume isn’t exactly known, but it’s important to prepare your budgets for the payments to resume because when the repayment clock starts, interest will once again start accruing too.
In 2018, the average college student graduated with about $29,800 in student loan debt. This amounts to about $393 in monthly student loan payments, without including interest. The average interest rate on student loans is 5.05 percent, which adds about $23 to the monthly student loan bill.
Student loan borrowers have had a break from making hefty monthly payments on student loans since March 2020, when the coronavirus pandemic began. The pause in payments was initially scheduled to last two months but kept getting extended. However, the repayment freeze, which also paused interest from accruing on student loans, will end at some point this summer.
Part of the confusion on when repayments will resume is due to the Biden Administration’s plan to cancel up to $20,000 in student debt per borrower. Lawsuits were filed in response to the student loan forgiveness plan, and in February 2023, the U.S. Supreme Court heard oral arguments in the case and will ultimately decide if Biden’s student debt relief plan can proceed or if student loan borrowers will have to pay back the full amount owed.
The U.S. Supreme Court has said it’s trying to expedite its ruling on the case, but it’s possible repayment could resume without the Supreme Court weighing in.
There are currently two scenarios for when repayment will begin.
If the Supreme Court rules on Biden’s plan before June 30, 2023, borrowers with remaining student loan balances will need to start repaying loans 60 days after the court decision, at which point interest will also accrue again as well.
If the Supreme Court has not made a decision on Biden’s debt cancellation plan by June 30, 2023, forbearance will end. Borrowers will need to start repaying loans 60 days after June 30, at which point interest will also start accruing again.
It’s possible the Biden administration may attempt to further extend the pause on student loan payments, along with a freeze on interest, depending on the Supreme Court’s decision. But it’s unclear if the repayment freeze would be legal given it was considered a pandemic-era relief program and the pandemic was declared “over” by Biden in September 2022, with the COVID-19 national emergency officially ending in April 2023.
Regardless, another delay won’t prevent the inevitable.
“More time doesn’t solve the problem,” Scott Buchanan, executive director at the nonprofit trade association Student Loan Servicing Alliance, told USA Today. “Borrowers don’t have to pay for a couple of more months, but it doesn’t move the needle much for resumption,” he added, noting people have so far shown little interest in preparing.
Not only are there 50 million plus student loan borrowers who had payments frozen at the beginning of 2020 but there are also some 7 million people who graduated during the freeze that have never made a payment toward student loans.
Credit Card Debt vs. Student Loan Debt
Those with credit card debt and student loans frequently struggle to stay afloat financially. And when so much of your hard-earned money is spent paying off debt, it becomes a whole other challenge to stay motivated to pay off debt, let alone save for the future or afford a mortgage.
If you have both student loans and credit card debt, you’re likely wondering:
Should you put the majority of your money toward paying off your credit card debt while meeting only the minimum payments on student loans? Is it the other way around? Or should you be making equal payments to both?
Read More: Should You Prioritize Paying Off Credit Card Debt Or Student Loans
Although it’s a personal decision, credit cards tend to have higher interest rates than student loans (20 percent average vs. 5 percent average, respectively), by tackling the more expensive credit card debt first, you’ll likely save money in the long run.
“The most basic rule of thumb is: What debt is costing you more in the long-term,” says Bruce McClary, a spokesman for the National Foundation for Credit Counseling.
Given credit card debt has a higher interest rate and you’re likely carrying a large balance on it, that debt is usually costing you more than your student loans.
“Get that out of the way,” McClary says. “Pay those balances down [and] find a way to accelerate the repayment of that debt.”
Once your credit card debt is paid off, you can use the money you were paying toward that balance to pay off your student loans. A bonus is that by paying off your credit card debt first, you may be even more motivated to tackle the last of your debt with even greater enthusiasm.
How to Prepare Your Budget for Student Loan Repayments
1. Know How Much You’ll Owe Monthly
It is imperative that student loan borrowers comprehend exactly how much their minimum loan payment is each month. It’s pretty simple if you have a single loan, but if you have numerous student loans, you’ll have to break out the calculator (most likely) to figure out how much you owe in total. Don’t forget to account for interest owed each month on your student loans too!
Once you know how much you’ll owe monthly toward your student loans, you’ll want to know how this amount fits into your monthly budget.
DebtWave has a free debt-to-income ratio calculator you can use to determine how adding student loan payments will affect your budget.
You can also speak with one of our certified credit counselors during a complimentary one-on-one budget analysis to get a better idea of where and how you can save money in your budget to put toward your student loan debt.
2. Start Setting Aside Money Now
If you haven’t been making payments during the student loan freeze, nor have you set any money aside for when student loan payments resume, it’s time to get in the habit of doing so.
Although some student loan borrowers have been using what would have been their student loan payment money to travel, buy a home, or order takeout, it’s important to get out of the habit of pretending this student loan debt does not exist.
If you don’t want to make any payments on your student loans until the repayment freeze ends, consider setting up a savings account where you can deposit what you anticipate your monthly student payment will be. Putting this money in a savings account not only gets you in the habit of not spending this money on discretionary items, but you’ll also earn a little interest on the money, which could help you pay down your student loan debt even faster.
3. Start Making Payments Now
While student loan payments are frozen currently, you can still make payments toward your debt. Given that student loans currently have a 0 percent interest rate, every dollar you pay toward your student loan debt will go straight toward the principal.
And given that it takes 10 years on average to pay back a student loan, these interest-free payments could help put you on the fast track when it comes to paying off your student loans. However, not many borrowers are taking advantage of this interest-free period.
According to the latest federal data, a total of 500,000 borrowers (about 1.16 percent of all 42.9 million federal loan borrowers) continued making payments during the pause.
4. Enroll in a Debt Management Program to Lessen Other Monthly Debt
If you’ve used the student loan repayment freeze period to pay off high-interest credit card debt, you may wonder how your ability to pay off your credit cards will be impacted by your monthly student loan payments.
Consider speaking with one of DebtWave Credit Counseling, Inc.’s certified credit counselors about your budget and/or credit card debt payoff options, such as lowering interest rates on your credit cards to allow you flexibility in your budget so you can afford your monthly student loan payments and not get stuck in a cycle of high-interest debt by only paying the minimum payments toward your credit cards.
Enrolling in a debt management program will allow you to chip away at your credit card debt while paying down student loan debt.
“You can have your cake and eat it, too,” McClary says. “It’s not an either-or situation. You get to manage both more effectively if you take on your credit card debt [first].” Then, you pay it off and “get it out of the way.”
Learn more about DebtWave’s credit counseling and debt management services and schedule a complimentary budget analysis with one of our certified credit counselors here.
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