It was nice that student loan borrowers got a break from paying back those debts for several years -- even if the reason why Washington put them on hold was far from nice. But that reprieve is coming to an end.
More than 40 million U.S. borrowers will have to start paying back their student loans in late August. And that means that millions of Americans risk seeing their finances upended.
Compounding the problem is the fact that student loan payments are resuming at a time when inflation is still relatively high. Thankfully, it has cooled substantially since June 2022, when the Consumer Price Index peaked with a year-over-year increase of 9.1%. As of May 2023, it was down to a 4% increase. But things like groceries and utilities are still noticeably more expensive than what many consumers were used to. Throw student loan payments back into the budget mix after three years, and it's conceivable that a lot of people might end up with new revolving debt later this year as their shaky finances leave them charging other expenses on credit cards.
If you are among the millions who will soon enough resume repaying student loans, here are two things you should do in advance to prepare for that change.
1. Start saving more today
Your finances might get thrown for a loop once you're required to start making payments on your student loans again. So a good move would be to spend the next couple of months saving up before payments resume. That way, you'll have a cushion, and the adjustment might end up being a bit easier.
Of course, it's not so easy to save money at a time when living costs remain elevated. But if you're willing to put in the effort and get creative, it can be done.
One option is to turn to the gig economy as a means of generating extra income. That doesn't necessarily mean plugging away at a side hustle you hate, though. If you don't want to drive for a ride-hailing service or take on boring data entry work to drum up extra cash, see about monetizing a hobby, whether it's playing your guitar at local restaurants or selling the baked goods you love to prepare at farmers markets.
At the same time, try to cut your spending to a reasonable degree. This doesn't mean you can't buy the occasional coffee or order a single takeout meal between now and when student loan payments resume. But if you can reduce your discretionary spending to some degree and bank the difference, you may have an easier time managing your budget this fall.
2. Consider your repayment plan options
In addition to saving extra money, it could pay to look into your student loan repayment options. One of the benefits of being a federal student loan borrower is that you can apply for different repayment plans depending on your needs.
One option you may want to consider if your earnings aren't particularly robust is an income-based repayment plan. And there are other plans that spread out your repayment window.
That said, don't automatically choose the extended repayment plan that leaves you with the lowest monthly payments. While that might offer some relief in the near term, it could have you spending a lot more money on interest in the long run.