If you were really hoping for that $10,000 worth of student loan forgiveness, you’re not alone. Around 14 million people would have found their student loans completely wiped out. And a total of ~40 million people being eligible for at least some debt relief.
On June 30th, the Supreme court officially put the kibosh on this debt relief attempt. Payments are set to resume in October. The reasoning behind the decision boils down to the fact that the high court believes that this kind of debt relief program needed to come through Congressional action, not via a mandate from the Executive branch.
President Biden is pursuing alternative avenues to achieve student loan forgiveness. But nothing is guaranteed and you will need to start paying on those student loans again this fall.
Some good news: The new Income Driven Repayment Plan will likely cut your student loan payments in half, and help to provide some extra relief. More on this below…
We want you to be prepared! That’s why we created this post to help you make a plan so that these payments don’t take you by surprise when they resume!
How to Prepare for Student Loans Resuming:
If you’re blindsided by this, we don’t blame you. Student loan payments have been paused for over three years. That’s a long time!
And over this lengthy period, you may have taken advantage of having fewer monthly expenses by saving up for a big financial goal, or even just boosting your entertainment budget.
Some of you who graduated during the pandemic may not have even begun paying down your loans. But now it’s time to bite the bullet and put together a game plan to tackle these payments.
1. Find Room in Your Budget for Payments
Step one will be easier for some than for others. The average monthly student loan payment is in the range of $400-600. If you’ve removed the student loan line item from your budget, it’s time to sneak it back in there.
If you find that every dollar in your budget is already accounted for, here are a few ideas. These might help you free up the money for your resuming student loan payment.
Cancel some recurring payments
The first step you can take to free up some money for your student loan payments is to try and eliminate a few recurring monthly payments.
Don’t get the wrong idea here – we’re not trying to give you the old “stop eating avocado toast and you’ll be able to buy a home” spiel. Even when you’re living a frugal lifestyle, we want you to be able to enjoy some of the things that bring you joy! However, canceling a few subscriptions that you don’t get enough use out of can help you to amass enough money to make sure those student loan payments are covered.
Consider performing a subscription audit
Just take a look at your credit card statements. See if there are any services you are paying for that you don’t really take advantage of. If you’ve been paying for a gym membership but rarely go, can you switch to a cheaper membership? Still paying for LinkedIn Premium but found a job months ago? Get rid of it!
Take a few minutes to cancel these and you can free up hundreds of dollars each month. And I’m not exaggerating here. According to USA today, the average monthly subscription spend is $219!
Or- take an entirely different approach to subscriptions by only signing up for them when you want to use them. Take for example the many streaming services. Instead of paying for all of them together in perpetuity, why not switch between them every few months? Use one service, then when there’s something new you want to watch on another platform, switch! Challenge yourself to only pay for one of them at any given time. Remember, you can always re-subscribe if you miss it too much, so there really is no risk.
Another great example is Amazon Prime. If you know you’re going to place a lot of orders (eg. holidays) sign up just for that particular month. Then cancel when you no longer need it as opposed to paying for Prime the entire year.
Pay down debt ASAP
Another way to free up some room in your monthly budget to accommodate your student loan is to take a laser focused approach to paying down a debt.
If you’ve been chipping away at a high interest debt, like credit card debt, now is the time to hustle in order to pay it down. Even throwing just an extra $50-100 each month towards that debt can help you to pay it off considerably quicker! You’ll also pay less overall, and lower your monthly payments.
Eliminating this debt now will help create a lot more margin in your budget when your student loans resume. If you need help getting together a plan to crush your debt, consider creating a debt payoff plan.
Negotiate your bills
Unfortunately, we as consumers are typically not rewarded for being loyal customers when it comes to bills like insurance, internet, phone and cable. That’s why it’s important to negotiate, or shop around for these services every year or two.
If you’re still with one of the big phone providers, you’re probably missing out on some serious savings. You could snag great discounts from one of these cheap cell phone plans. For example, Mint Mobile has an unlimited plan for just $30 each month. That’s a full $35 less than Verizon’s $65 unlimited plan! Here are some other cheap cell carriers — also known as MVNOs.
When it comes to cable and internet, try calling your company and asking for the “customer retention department”. Then, ask them if they have any new customer promotions that they can offer you. Just be prepared to walk away and go elsewhere if they say No.
Related: Here are some other ways to ask for a discount on services!
Lastly, you should really be shopping around your car insurance every year or two if you want to score maximum savings. You can use a free tool like Policygenius to compare rates. Or you can reach out to a local independent insurance agent to get quotes there too.
For even more ideas on how you can save on your monthly expenses, be sure to check out “Yes, You Can (and Should) Negotiate Your Bills.”
Start a side hustle
If you’ve done all of the above and are still coming up short, or just want to make a few extra bucks to pay down that pesky credit card debt more quickly, it could be time to start a side hustle.
Side hustles are awesome because they can help you to accelerate progress on your financial goals, make some extra money, and even help to protect your finances against total loss of income in the case of a job loss.
We have a ton of resources with side hustle ideas, and advice for creating the best side hustle for you on our website so be sure to check them out!
Resources:
- 15 Side Hustles For Couples- Earn Cash, Together!
- Creating a Dope Side Hustle- Episode 035
- These Freelance Skills are in High Demand
2. Practice Making Your Payments
The next step in preparing for student loan payments to resume is getting into the habit of making those “payments” now. We don’t want you to be shocked in October when that money leaves your account for the first time in three+ years!
This is advice that we’ve been giving people since the start of the payment pause, waayyyyy back in 2020 when it first started. The idea is to practice making these payments by setting aside the specific amount of money that would go to your loan. We recommend placing it in a savings account. Then, when payments resume, you have a pretty large chunk of change set aside and a few options as to what you can do with it.
You could use it to pay off a good portion of your student loans and take advantage of the fact that interest has not been accumulating. Or put it towards another financial goal like a home down payment, a new to you vehicle, or use it to pad your emergency fund.
If you’re reading this article at the time it’s posted, you have about 4 months until payments resume. Assuming your loan payment falls into that average $400-600 per month zone, you could still set aside a good $1,600-2,400 by the time payments resume by practicing making these payments first.
The point of this is to get used to making the payments now. Don’t get caught off guard in a few months. That way, you have some time to workshop the best way to find room in your budget.
Make sure to stick this money into a High Yield Savings Account! You’ll make up to ten times the national average in interest. You’ll also cut back on some of those ridiculous fees that big banks are still charging.
3. Keep an eye out for the new SAVE Program
Here’s that good news we promised you at the beginning of the article. The Department of Education is rolling out a new income driven repayment plan that could cut your monthly payments in half (or more).
According to the White House, the Saving on a Valuable Education plan, or SAVE, will be available this summer, before loan payments resume. And it comes with a ton of perks for those with federal student loans.
First, under the SAVE plan, your undergraduate loan payments would be limited to just 5% of your discretionary income. As opposed to the current 10%. And under this plan, many people with meager incomes will have monthly payments of $0.
Plus, this plan raises the amount of non discretionary income that is protected from repayment at the same time. Under this plan, those who make less than 225% of the federal poverty level will not have a monthly payment at all.
Now you might be wondering- wouldn’t your loan just continue to grow if you aren’t paying off your monthly interest? Nope! As long as you make timely payments, monthly interest will not accumulate!
Best of all, loan balances with a principal of $12,000 or less will be forgiven after just 10 years of payments.
Make sure to keep an eye out for when the application goes live by checking StudentAid.gov. Otherwise, you can sign up for the current REPAYE plan now… Then you’ll be automatically enrolled in the SAVE plan when it rolls out.
What if I’m Not Prepared to Make Payments in October?
While we would never recommend missing a student loan payment if you can avoid it, the Department of Education is creating an “on-ramp” period to make the effects of a late, missed, or partial payment less catastrophic.
Borrowers who miss payments, or only make partial payments will not be considered in default, sent to collections, or reported to the credit bureaus for a full year after loans resume in October.
However, at the end of the on-ramp program, interest WILL accumulate, so make sure to take the proper steps now to prepare to start making these payments.
The Bottom Line:
If you’re bummed about the decision on student loan forgiveness, we understand! It’s totally okay to be upset. But that doesn’t mean that you shouldn’t take the proper steps to make a game plan when payments resume in October.
Taking the time now to get ahead of the game will help you to feel more prepared this fall. And hopefully help to eliminate stress as you adjust to this change in your budget.
Be sure to check out these related posts for more advice on paying down that pesky student debt!
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