When the COVID-19 pandemic struck, it dealt a staggering blow to the U.S. economy as all sorts of work slowed or halted. In response, lawmakers rushed to provide the public with relief in an array of different forms, including stimulus checks, boosted unemployment benefits, and provisions for student loan borrowers.
For more than three years, student loan repayments were paused. And during that time, those borrowers didn't have to worry about interest accruing on their educational debt.
But now that the Supreme Court has blocked President Joe Biden's broad student loan forgiveness plan, student loan payments will start coming due in October for millions of borrowers. On top of that, interest on student loans began to accrue again on Sept. 1.
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If you still owe money on student loans, it's important for you to know whether you're accruing interest on that debt. And it's also important to know how to get ahead of it.
When you're attending college
Even though student loan interest began to accrue again on Sept. 1, you may not have anything to worry about just yet if you're still a student. Borrowers who take out subsidized loans generally do not accrue interest on that debt while they're still in school.
But if you've taken out unsubsidized loans, you should know that you're probably racking up interest on that debt at this very moment -- even if you are still in school. So if possible, you may want to consider getting a part-time job so you can start to chip away at your loan balance and minimize the amount of interest you rack up.
When you've recently graduated
If you took out subsidized loans and recently graduated college, you may not start accruing interest right away. That's because these loans commonly come with a grace period that usually lasts for six months after graduation. So if you got your diploma this past May, you might still be in the clear for a little while longer, as far as interest goes.
However, you will want to be mindful of when your grace period comes to an end. And if you took out unsubsidized loans, you shouldn't expect a grace period at all, since these loans commonly accrue interest even while the borrower is pursuing their studies.
What if you can't make your payments come October?
For many people, having to make payments on student loans next month after a years-long pause is a daunting prospect. If you're worried about your ability to keep up with your payments, you can always talk to your loan servicer about different repayment plan options.
But be aware that the longer it takes you to pay off your student loans, the more interest you'll rack up on that debt. So tempting as it may be to move to an extended repayment plan that offers you lower monthly payments, in the long run, that choice could end up costing you a lot of money.
Also, you may be eager to apply for student loan forbearance if you're experiencing a financial hardship that makes repaying your debt extremely difficult at the moment. But you should also know that while forbearance will allow you to pause your repayments without landing in default, it won't necessarily stop the debt from accruing interest. That's a big drawback to consider.
All told, a big reason so many borrowers have a hard time repaying their student debt boils down to the interest component. It's important that you understand what type of student loan you have and how interest factors in. And if you're accruing interest on that debt already, do your best to start paying down your balance to minimize that expense.
