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  • Writer's pictureRob Winkler

As Student Loan Repayment Resumes Here Some Do's and Don'ts For Managing

With just a few months remaining until student loan payments resume, borrowers are advised to explore various options available to minimize the impact on their budgets. Recent developments, including the Supreme Court ruling against President Joe Biden's student debt forgiveness plan, have necessitated the introduction of alternative measures to assist borrowers.

To further aid individuals, the Department of Education has unveiled the Saving on a Valuable Education (SAVE) plan, and additional strategies are being recommended to help borrowers prepare for the restart of loan payments.

Supreme Court Ruling and the SAVE Plan

The Supreme Court decision struck down President Biden's proposed student debt forgiveness plan, which aimed to cancel $10,000 in federal student loans, including Parent Plus loans, for borrowers earning less than $125,000 (or households with incomes below $250,000). However, Pell Grant recipients, who typically demonstrate greater financial need, will still benefit from an additional $10,000 in debt forgiveness.

Simultaneously, the Department of Education has finalized the Saving on a Valuable Education (SAVE) plan, which is being touted as "the most affordable repayment plan ever created." This income-driven repayment (IDR) plan offers borrowers several advantages to reduce their monthly loan payments. Here are the key details of the SAVE plan:

  1. Lower monthly payments: Undergraduate borrowers will only be required to pay 5% of their discretionary income each month, a reduction from the previous 10%. For instance, a single undergraduate borrower earning $50,000 annually would experience a $72 decrease in monthly payments, resulting in a total reduction of $163 per month.

  2. Adjusted discretionary income calculation: The plan modifies the calculation of discretionary income, increasing the amount of income considered nondiscretionary. This change ensures that borrowers earning less than 225% of the federal poverty level will not have to make monthly payments. It provides significant savings for lower-income borrowers, with an estimated annual reduction of at least $1,000 for those who are not eligible for a $0 payment.

  3. Accelerated loan forgiveness: Borrowers with original loan balances of $12,000 or less will have their loan balances forgiven after 10 years of payments, instead of the previous 20 years. This alteration aims to enable nearly all community college borrowers to become debt-free within a decade.

  4. Halt on interest accrual: The SAVE plan stops the accumulation of unpaid monthly interest for borrowers who make timely payments. Approximately 70% of borrowers who were previously on an IDR plan are estimated to benefit from this change.

Preparing for Loan Repayment

To help borrowers prepare for the resumption of student loan payments, several recommendations are provided:

  1. Save money in an interest-earning account: Consider depositing the monthly loan payment amount into a savings account that offers a competitive interest rate. Online savings accounts that provide approximately 5% interest can be explored to maximize earnings.

  2. Assess employee benefits: Check if your employer offers student loan payment matching or assistance programs. Companies such as Aetna, PwC, and Google provide financial contributions toward employee student loans, which can significantly alleviate the burden of repayment.

  3. Adjust your budget and seek additional income: Evaluate your current expenses and identify areas where you can cut costs. Consider taking up a side hustle or additional part-time work to supplement your income, which can be dedicated towards loan payments.

  4. Explore repayment plan options: Speak with your loan servicer or utilize online Loan Simulators to assess if you are eligible for alternative repayment plans that offer lower monthly payments.

  5. Consider refinancing, but be aware of consequences: If you anticipate affordability issues with your current interest rate, explore refinancing options to secure a lower rate. However, it is crucial to note that refinancing with a private company renders the loans ineligible for federal forgiveness programs.

  6. Research other loan forgiveness programs: Investigate state-based student loan forgiveness plans that are tailored to specific industries or professions. Some programs may require individuals to work in critical areas for a specified period to qualify for debt waivers.

  7. Seek advice from experts: Consult with a mentor or financial adviser to gain a better understanding of the available options and make informed decisions. Resources like the Federal Student Aid website, Student Borrower Protection Center, and the Institute of Student Loan Advisors can provide valuable guidance.

  8. Avoid credit card payments: It is advised to refrain from using credit cards to make student loan payments. Credit cards typically carry higher interest rates, which may result in increased debt and financial strain.

  9. Beware of scams: Be vigilant and avoid paying for assistance with federal student aid. Scammers may contact borrowers, claiming to provide loan discharge, forgiveness, cancellation, or debt relief for a fee. Always work directly with trusted entities such as the U.S. Department of Education, the office of Federal Student Aid, and authorized loan servicers, and never reveal personal information or account passwords to unknown individuals.

As the countdown to the resumption of student loan payments continues, borrowers are urged to explore these options and recommendations in order to make informed financial decisions. Adequate preparation will help individuals manage their loan obligations effectively and alleviate the potential burden of loan repayment.

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