When the COVID relief payment pause is finally lifted, federal student loan borrowers will be expected to resume making regular payments on their educational debt.
Here are some ways you can prepare to make payments once they resume.
1. Consider forbearance options.
Technically, all federal student loan borrowers have been in a period of forbearance since early last year, with no payments required.
Forbearance options are also offered to federal loan borrowers outside of COVID-19. You can also request forbearance if you’re experiencing situations like financial hardship, medical issues, unemployment, or if your minimum loan payments equal 20% or more of your monthly income.
During a non-COVID forbearance period, you’re able to temporarily lower payments or pause them altogether. Just be aware that interest will likely continue to accrue on the loan, and it may take you longer to pay off the debt in the long run.
2. Request an income-based payment.
One of the benefits of federal student loans is that they’re often eligible for income-driven repayment (IDR) plans. And if your income has dropped in the last year and a half, this could be a much-needed path to consider when it comes time to start making payments again.
Income-driven plans allow borrowers to adjust their monthly payment requirement according to their income. There are four different income-based repayment options, depending on the loan(s) you have, but all of them cap your monthly payment at 10% to 20% of your income.
At the end of the plan’s repayment period (which ranges from 20 to 25 years), any remaining loan balance is forgiven. These IDR plans can also be used along with public service loan forgiveness (PSLF) programs, if you qualify.
3. Start budgeting now.
Whether you’ll be making full loan payments again or trying to reduce your monthly obligation, resuming student loan payments will impact your budget. So, it’s important to start planning early.
One easy way to account for this payment ahead of time is to automatically transfer your loan payment amount into a savings account each month. This will help you adjust your available cash flow and get used to budgeting for this payment once again. Plus, you can build up a buffer of savings in the process!
When Should I Start Making Student Loan Payments Again? is written by Stephanie Colestruck for www.chime.com