Student Loan Payments Will Resume for Millions of Borrowers
Roughly 42 million people with student loans will soon have to start making payments again. The payment freeze in place since March will lapse at the end of the year. Consequently, borrowers should anticipate having to cut a check in January unless the President and Congress act.
If you have federal student loans, prepare now to start making payments. Fortunately, interest has not accrued on your federal loans during the past 9 months. Lenders have also paused any collection efforts during the pandemic.
Prepare for the Worst
Financial experts who spoke with NBC emphasized that students should not expect another payment freeze—and they certainly should not expect President Biden to write off any of their debt. Though he has made plenty of noise to this effect, he is also receiving pushback from powerful interests.
Instead, experts are telling borrowers to prepare for the very worst. This means resuming full monthly payments and possibly facing collection actions if you are in default. As an example, a defaulting student can have his or her wages garnished. If you were counting on that money to live on, then you will have to re-budget so that you can get by on less.
Assess Your Other Debts
Many people with student loans also have other debts, such as credit cards. You might be able to wipe out this unsecured debt, which can free up some more money to go to your student loans.
Now is the time to do a debt audit. Sit down and write down all your debts, including student loans. Note whether any debts are secured (such as a car loan). Then write down the interest rates and the monthly payments.
You might be able to reduce your monthly debt payments by consolidating debts into a lower rate. For example, you might use a balance transfer to reduce your credit cards, or you could get a personal loan. Generally, consumers need strong credit to pull over consolidation.
Choose a Different Payment Plan
Also give some thought to changing your payment plan. Students with federal loans have many different options. You might stretch out the length of repayment to 20 years, or you could choose an income-driven repayment option that will set the monthly payment based on your income. These options will increase the amount you pay back overall, however.
If you are unemployed, then you might request an unemployment deferment. You will need to certify every six months that you are unemployed, but it might be the lifeline you need until the economy heals and you return to full-time employment.
Also consider paying more each month. If you came through the worst of the pandemic in decent financial shape, then you should consider increasing the amount you pay off each month. Doing so will ultimately whittle down the principal faster, which reduces the amount you will pay in interest.
Discuss Bankruptcy with Us
When auditing your debt, you might realize that you owe a considerable amount in credit cards, personal loans, and medical debt. This type of debt is easy to wipe in Chapter 7 bankruptcy. To learn more, contact a Plantation bankruptcy attorney at Nowack & Olson today at 888-813-4737.