How to Prepare for the Return of Student Loan Payments

Over the past two years, federal student loan borrowers have enjoyed a payment moratorium, or a pause of their monthly loan obligation. With federal loan forgiveness still up in the air, most of these borrowers are set to see their required payments return as early as September 1. 

If your federal loans have been on pause and you’re expecting payments to resume soon, here are some ways you can financially prepare.

COVID and the Student Loan Repayment Pause 

When the COVID-19 pandemic began in the U.S. in early 2020, no one had any idea that the financial impacts would last for years to come. Many policies were put into place in an attempt to help households make it through the height of the pandemic; one such policy was a moratorium (or pause) of federal student loan payments.

Since March 2020, federal loan borrowers have not been required to make any monthly payments on their outstanding loans. During this time, interest rates have been zeroed out, and borrowers’ balances have temporarily stopped accumulating interest. (This has not applied to private student loan lenders, however!)

The moratorium has helped borrowers save money. Not only have they been able to direct those funds toward other household expenses, but borrowers also haven’t increased their debt during this time. And for those on income-driven repayment (IDR) plans or planning to request federal loan forgiveness, these payment-free months still count toward the requirement. 

But Payments Are Resuming…

Of course, all good things must come to an end. The federal student loan moratorium wasn’t supposed to last this long, after all. In fact, it has been extended a total of six times thus far. 

At the time of publication, the student loan repayment pause is scheduled to end on August 31, 2022. Assuming that the White House does not grant another extension before then, federal loan borrowers can expect that their two-and-a-half-year loan payment hiatus will finally come to an end. 

How to Prepare for the Return of Student Loan Payments

The idea of resuming loan payments may be tough for some borrowers, especially in light of recent inflation across the country. With the August 31 deadline looming, it’s important for federal loan borrowers to prepare for the inevitable.

Here are some ways you can get ready for student loan payments to start back up, and how to manage those payments if you can no longer afford them.

Get your budget in order

If you haven’t made student loan payments in over two years, it’s unlikely that your current budget accounts for them. Before the moratorium period lifts, it’d be wise to sit down and really crunch the numbers.

Adding a monthly student loan payment back into the mix might put a pinch on your current budget. If so, see if you can find other ways to cut costs or reduce areas of spending to account for this renewed obligation.

Consider consolidating your loans for simplicity

It’s typical for students to take out more than one loan over the course of their college career. If you have multiple loan balances, you also have multiple payments to track (which may even have different due dates). A Direct Consolidation loan can combine all of your federal student loan balances into one account, with one interest rate and a single monthly payment.

This makes managing payments simpler each month, and your outstanding debt easier to track.

Do the math on refinancing

Federal student loans offer many benefits and features that are not available on private student loans. (These last two years of the federal loan moratorium are proof of that!) So refinancing these loans into a private refi loan should only be done after much thought.

However, refinancing also offers some benefits. With a refi loan, you can:

• Consolidate all of your federal and/or private loans into one balance with one monthly payment

• Reduce your individual and overall interest rates

• Lower your total monthly payment obligation

• Remove or add a cosigner to your loan(s)

In some cases, refinancing could not only save you money in interest, but also allow you to choose a monthly payment that’s manageable for your budget.

Apply for an income-driven repayment (IDR) plan

One of the biggest benefits of having federal student loans is access to an income-driven repayment plan, also known as an IDR. These plans adjust your monthly student loan payments according to your income and your family size. 

This ensures that your loan payments don’t account for too much of your monthly discretionary income. There are four IDR plans to choose from, which set your monthly payment obligation to about 10% to 25% of your discretionary income. 

The best part? At the end of the IDR term (usually between 20 and 25 years), any remaining loan balance is forgiven.

Contact your lender if you need forbearance or deferment

Resuming student loan payments may present a financial hardship for many households. If you have an extenuating circumstance that would make it difficult for you to repay your loan(s) as scheduled, consider asking your servicer about forbearance or deferment options. 

Both of these would allow you to keep your student loan payments on pause, as long as you can demonstrate financial need. Depending on which option is available to you, interest on your student loan debt may begin accumulating again, however.

Bottom Line

If you’ve had a break from student loan payments these last few years, the looming return of payments can feel daunting. There are many options that can help make your payments and loan management easier after the moratorium ends, whether you have federal loans, private loans, or both.