With uncertainty surrounding the unfolding pandemic, on March 13, 2020, most federal student loans went into “Administrative Forbearance.” During this time, eligible loans had their interest rates set to 0% APR and loan payments were paused.
On December 31, 2022, nearly three years later, the administrative forbearance is set to end – meaning federal student loan payments will resume in 2023.
For many borrowers, this is causing panic and stress. While the initial effects of the pandemic have largely passed, rising prices and record inflation are already hitting borrowers’ wallets. Before your student loan payments resume, review the following tips to ensure you’re financially ready.
1. Review Your Loan Details
Log into your student loan servicer’s website and your StudentAid.gov profile. You’ll first want to make sure your contact information is accurate and up to date. Then make a note of details regarding your outstanding student loans, such as:
- Upcoming payment schedule
- Minimum payment amounts
- Current interest rates
- Number of payments remaining
- Projected payoff dates
This information will help with budgeting and possible loan consolidation options.
2. Revisit Your Budget
Between the pandemic and record inflation, your budget has likely been all over the place during the last few years. It’s smart to sit down and create an entirely new budget as you prepare for 2023.
First, identify all your must-have expenses, such as housing, transportation, food, utilities, etc. Then look at your other recurring expenses and find areas to cut back. Make sure you leave some fun money in your budget – you’re not trying to punish yourself by any means.
Your goal is to create a budget that allows you to meet your primary financial obligations, resume your student loan payments, and live comfortably. And that will likely require some sacrifices.
3. Explore Loan Consolidation Options
If you have multiple federal student loans, you might be able to consolidate them into another federal loan called a Direct Consolidation Loan. By consolidating, you could potentially reduce the amount of your monthly payments. Plus, managing a single payment versus multiple monthly payments is easier.
If your student loans are private, loan consolidation is still an option. But you might also want to look into refinancing your private student loans with another lender. By refinancing, you could potentially qualify for lower interest rates and more favorable terms – further lowering your monthly payment amount.
4. Plan for Financial Windfalls
Windfalls are larger sums of money that come your way, and they can be expected or a complete surprise. For example, expected windfalls might include your tax refund or an annual work bonus. Unexpected windfalls could be receiving an inheritance or a work promotion with a significant pay raise.
Whether expected or not, it’s wise to include a portion of this money in your budget for paying down outstanding loans. Anytime you can pay a little extra toward a loan’s principal balance, you’ll reduce the amount of interest you owe and pay the loan off quicker.
5. Look for Other Income Streams
If your new budget isn’t where you’d like it to be, you might consider looking for additional income streams. Examples could include:
- Picking up extra hours or shifts at your current job
- Moonlighting your skills through freelance projects
- Beginning a side hustle, such as driving for a ride-sharing company
- Working part-time on the weekends
Any time you can bring in additional income is a boon for your budget. And it might be just what is needed to help cover your student loan payments.
6. Review Your Existing Loans
Whether it’s a car payment, mortgage, or credit card bill, loan payments are often your largest monthly expenses. They also provide the greatest opportunities to save. By consolidating or refinancing your existing loans, you might be able to free up significant money.
Even as interest rates rise due to inflation, if your credit score has improved since you initially opened your loan, you could qualify for a lower interest rate. Review all your outstanding loans and stop by the credit union to see if there are moves you can make to lower your monthly payments.
We’re Here to Help!
With federal student loans set to resume in 2023, it’s wise to start preparing for these payments now. Refinancing or consolidating non-student loans (e.g., car loans, home loans, credit cards) could free up a significant amount of money to help cover these future payments.
If you’re interested in reviewing your existing loans or would like to learn more about student loan refinancing, we’re ready to help. Please give us a call at 202-479-2270 to get started.