Throughout the pandemic, federal student loan payments and interest have been paused to help provide financial relief to borrowers as they tried to cope with hardships caused by COVID-19. After numerous extensions, the scheduled end of the federal student loan payment suspension is on August 31, 2022.
Additionally, many citizens are waiting for President Biden to fulfill his campaign promise to forgive as much as $10,000 in federal student loans for each borrower. To date, no bill in Congress addresses student loan forgiveness, and Biden has not executed a student loan forgiveness executive order. The uncertainty around student loans persists as the issue continues to be debated in Washington.
If you’re unsure of how to plan your finances amid the uncertainty around student loan repayment, here are some tips to help you manage your money and goals.
Establish What You’d Like to Accomplish
What is it that you want to do financially over the long term?
- Buy a house?
- Raise a family?
- Retire before age 60?
While it may be years before your student loans will be paid off, this doesn’t mean you can’t start taking steps toward your other financial goals.
Sometimes simply knowing what you’re working towards will make the goal feel more tangible and, therefore, achievable.
Plan Your Budget
No matter what the situation is, one of the best things a person can do is to make a budget and plan how they want to spend their money.
When you budget, you give each dollar a purpose, and that will help you be more effective in how it gets spent. Budgeting also shines a light on the reality of your financial position. The more successful you are at planning, the better you’ll be at staying within your budget boundaries.
Work Down Your Other Debts
If you have other debts besides student loans, then lowering them will be critical to your success. Getting rid of expenses like your credit card payments, or an auto loan will leave you with more monthly cash flow to put towards your student loans each month.
A good strategy to accomplish this is something called the debt snowball. This is where you focus on paying off the debt with the smallest balance first. Once it’s eliminated, you can then redirect those payments towards the debt with the second-highest balance and pay it off. Before long, your debts will be systematically erased one by one.
Consider Changing Your Payments
There are two major ways to change your monthly student loan payment: refinancing your loans or moving to an income-driven repayment for federal loans.
For those who are determined to tackle their student loan debt quickly, student loan refinancing could be a good option. A student loan refinance may give you the opportunity to set up new repayment terms. This allows you to either shorten the term of your loan, reduce your monthly payment, or potentially do both at the same time. Refinancing options could give you the flexibility to become debt-free faster.
On the other hand, if you’re struggling to make payments and you have federal loans, you can apply for an income-driven repayment (IDR) plan. This is where your loan will be restructured according to what you can pay versus what you owe, generally resulting in a lower payment spread out over a longer-term. Specific program requirements will vary depending on which federal repayment plan you choose.
To see if you qualify, check the U.S. Department of Education website.
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