The student loan repayment pause has been extended multiple times, but the recent debt ceiling deal could turn the tide. If the deal is approved and becomes law, the pause on student loan payments would "cease to be effective" 60 days after the end of this month and repayments would restart by the end of the summer.
This week, the U.S. House of Representatives passed the debt ceiling bill, getting us one step closer to a decision. This is in line with the Biden administration's previous announcement to restart student loan repayments either 60 days after June 30, 2023 or upon a decision by the U.S. Supreme Court on Biden's student loan debt cancellation plan, depending on which event occurs first.
Because there are so many moving pieces, it's important to plan ahead to avoid financial stress later. We've nailed down four moves you can make right now to make room for a stress-free summer.
1. Find your loan details
Many borrowers haven't had to think about repaying their federal student loan debt and interest since early 2020. If you've never peeked at your student loan details since graduating college, the process can be even more daunting.
Don't sweat it -- you can log into your Federal Student Aid (FSA) account to find your loan details. Start your research by finding the answers to these three questions:
- Who is your loan servicer?
- How much do you need to pay when student loan repayment returns?
- What is your due date?
2. Review your budget
Federal student loan payment updates are moving fast, but that doesn't mean you can't prepare your budget for whatever lies ahead. Since you may have a few months before student loan payments kick in, you can start shifting things in your budget to avoid a financial shock. Here are some moves you can make now:
- Add up your current monthly income and expenses.
- Review the impact student loan payments will have on your budget.
- Determine if you need to increase your income or decrease expenses to comfortably meet your student loan obligations.
3. Explore your repayment options
If the standard 10-year repayment plan puts a strain on your budget, you can see if you qualify for other options, like an income-driven repayment (IDR) plan.
For example, a pay-as-you-earn (PAYE) plan caps student loan payments at 10% of your discretionary income. After 20 years of repayment, your remaining loan balance will be forgiven.
Your payments could be even lower -- 5% of your discretionary income -- if President Biden's student loan plan comes to life.
4. Beef up your emergency fund
Since student loan payments are on pause, you have time to build a solid emergency fund balance. An emergency fund will reduce your chances of missing bills due to unexpected expenses.
Here are a few pointers to help you get your emergency fund on track before student loan payments are due:
- Open an account strictly for emergency fund savings.
- Determine how much you need to set aside to build a three, six, nine, or 12-month emergency fund.
- Automate your emergency fund goals with weekly or monthly contributions.
Prepare for the unexpected
There are still a lot of details that need to be ironed out regarding student loan repayment. While we wait for them to get sorted out, it's a good idea to get your finances in order now and get more information about your loan. That way, you can be ready to make your student loan payment with ease whenever that day arrives.
If you happen to be in a position where you don't have to worry about student loan debt, you can spend more time saving and investing your money. That way, you can live the life you've always dreamed of.