After a more than three-year pause, interest and payments on federal student loans will restart as early as September. For over 40 million Americans, this reintroduction to paying their student loans is daunting.
Even if the Supreme Court rules in President Biden’s favor on the student loan forgiveness plan, not everyone will have their loans forgiven in full or even partially.
A May 2023 working study by the National Bureau of Economic Research found that borrowers whose loans were on pause used their new liquidity, or spare cash, to get new types of debt. This debt includes mortgages, auto loans, and increased credit card borrowing.
But, they have tips for borrowers who want to prepare for the restart with the remaining few interest-free and payment-free months.
Williams and Harrison are Certified Financial Planners (CFP) with a special Certified Student Loan Professional (CSLP) designation that makes them experts on paying back student loans.
A CSLP is different from a financial aid officer found on college campuses. CSLPs, Harrison says, “strategize on repayment, as opposed to a financial aid counselor, who’s more so helping you maximize your aid while you’re in school.”
Most institutions have an exit counselor or an exit session for those who took out student loans during their higher education. These sessions and counselors provide the basics on repayment but don’t create specific plans for borrowers.
“We’re not doing the ‘preventative measures,’” Williams says. “But a student loan professional is going to help you understand the best strategies related to the federal student loan debt you have.”
The First Steps for Repayment
For the Black community, preparing for repayment has never been more critical. Black folks carry the most student loan debt, which they hold for longer than any other ethnic group.
“My biggest fear is that the people who are going to be harmed most are the people who owe the most — which are Black people,” Harrison says. “They’re not going to have many resources to go ask questions to make sure they’re not harmed.”
The first few steps in preparing for the restart are getting basic loan information.
Some easy starter questions to get answers to are:
- Who is the loan servicer?
- What is the total amount due?
- What is the interest rate for each loan?
- What type of student loans are they?
- When is the first payment due?
- What will the monthly payment be?
Each account on a servicer’s website should have specific loan information. However, these websites are another concern of Harrison’s.
During the last three years, some loan servicers, including Navient, Granite State Management and Resources, and Pennsylvania Higher Education Assistance Agency (PHEAA), left the student loan industry.
According to Bankrate, the loans from those former servicers should have moved to a new servicer, and the details of those loans should be the same.
“They’re going to contact you about your loans and what’s to come using the address and contact information on file or had on file back in 2020 or 2021,” he says.
Another important step is ensuring the servicer has up-to-date contact information, including a good email, phone number, and address.
Harrison recommends visiting the Federal Student Aid website for more information on federal loans and servicers.
And, while it’s a good idea to get in touch with servicers for basic information, Williams doesn’t recommend turning to them for help deciding on the best path forward based on an individual financial situation.
“The hard thing is your loan servicer is not going to be well-equipped to help you sort through your personal financial situation,” Williams says. “They’re not going to be able to say, ‘Hey, this is the absolute most efficient thing based on your overall financial picture.’”
Concerns for Borrowers Moving Forward
Williams’ number one concern with the restart is increased lifestyle creep. Lifestyle creep happens when an increase in income also leads to increased living expenses and spending.
“Maybe they had a $500 or even $1,000 student loan payment, and now they don’t have that same $500 or $1,000 available because they have some other monthly bill they replaced it with,” Williams says. “It’s going to stretch them really thin.”
While the relief of the pause was most felt by those already paying their loans, that didn’t stop students from graduating or leaving school with debt.
There are recent college students whose repayments didn’t start six months after graduating or leaving school like they usually would have.
“They were born into this pause, if you will,” she says. “They need to understand what repayment plans are available, how the various repayment plans work, and which is the most optimal for them because it’s not one size fits all.”
She recommends setting that money aside whenever possible if it’s not happening already.
“The time to take action is now,” Williams says. “Don’t stick your head in the sand. Instead of being angry that no one came with the magic wand of forgiveness, focus on how you can start creating wealth for yourself and putting the dollars you have to work in the most meaningful way.”
Update 7/5/2023: This story was updated to reflect new start dates for student loan repayment.
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