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After a three-year pause on payments due to the pandemic, student loan payments are scheduled to resume October 1. For many, adding student loan payments to a long list of expenses might be a struggle.
In fact, the Consumer Financial Protection Bureau has warned that one in five student loan borrowers will be at risk of financial insecurity when their payments resume. During the payment pause, many borrowers added other financial obligations to their budgets and due to inflation, expenses have increased across the board.
For those who think adding student loans to the budget might break it, there are steps you can take.
1. Understand how student loans will fit into your finances
Don't just guess whether you can afford the expense — student loan payments will require you to redo your budget. You have to do the math and see how the student loans will fit in with your other bills, your credit cards, auto loan, and/or personal loans. Before you take any other steps, understand how much money you have and how much money you need.
2. Contact your loan servicer to talk about your options
Even if you find yourself underwater with your expenses once student loans are back in the mix, not paying your loans is not an option. The consequences of defaulting on your student loans can be severe. Borrowers in default are no longer eligible for forbearance or deferment, your wages can be garnished, your credit rating ruined, and if eligible, Social Security payments can be withheld.
Call your loan servicer and discuss affordable payment options. Do it sooner rather than later. Do not wait until you have missed a payment to call; it is in their best interest to work with you so you do not default.
3. Look into the SAVE program
If you have federal loans, research and see if you qualify for the SAVE program, an income-driven repayment plan based on a borrower's income and family size — not their loan balance — that forgives remaining balances after a certain number of years.
4. Think about consolidation
If you are juggling multiple loan payments, you may want to consider loan consolidation. Federal student loan holders can apply for a direct consolidation loan, which consolidates your loans into one loan from a single lender and one monthly loan payment.
Student loan refinancing can lower your interest rate and help you pay down your loan faster. Get prequalified without impacting your credit score today.
5. Consider deferment or forbearance
If you're unable to repay your student loans because you're experiencing economic hardship or are having difficulty finding work, you may be able to defer your federal loans.
If you don't qualify for deferment, you may be eligible for forbearance, which can postpone or reduce your payments for up to 12 months.
What to do about private student loans
If you owe private student loans, this might be a bit trickier. Private lenders are not required to offer you any relief. A private student loan is a loan like any other, same as your credit card or auto loan, and they expect to be paid back according to the terms of the lending agreement you signed.
But private lenders will work with you to keep you out of default. Contact the servicer as soon as you know you will have trouble making the payments. Gather all documentation to provide proof of the hardship and a budget that shows your expenses.
You may also be able to refinance your student loan with another private lender to lower your monthly payments.
If your private loan servicer does not offer deferment or forbearance, ask about a reduced payment amount. Ask as soon as you can; a lender will be more willing to work with a borrower in good standing.