Pause on student loan repayments ends December 31 – everything you need to know
According to the U.S. Department of Education, the pause on student loan repayment, interest, and collections will end on December 30, 2022, meaning payments will resume in January 2023. And while efforts to cancel loan from president Biden (opens in a new tab) provided some financial relief to university students and graduates, many still find themselves with large sums to repay, especially those who had to take out private student loans and received no forgiveness compensation.
With payments restarting in January 2023 in the face of inflation and rising interest rates, not to mention right after the holiday season, it’s important to start creating an action plan around your loans now. , rather than later. For many, this will mean making their budget even tighter. However, the tips below will give you some insight into how you can pay off your student loans as soon as possible.
How you can pay off your student loans as quickly as possible
Many have already had to make cuts to their finances to account for inflation, and with the pause on student loan repayments ending at the end of this year, paying off student debt can seem daunting. However, there are ways to manage these loans and pay them back, allowing you to use that money elsewhere.
Keep in mind, though, that while paying off student loans is important, it doesn’t have to be a race to the end for everyone. While ultimately paying off student debt is the best course of action, it’s important to consider your other financial goals, responsibilities, or debts in order to decide on the best course of action. for your money.
For example, it might be wiser to prioritize saving for an emergency fund instead of funneling all that money into your student loan payments. Also, if you have another loan with a higher interest rate than your student loans, you can prioritize paying it off instead.
If your student loans are hurting your financial health, the steps below will help you pay off those balances quickly.
Create a successful budget
It’s no surprise that the first tip on this list is to start your loan repayment journey by creating a detailed budget, an important step for any financial goals you might have.
Having an overview of income and expenses will help you visualize how your money is being spent on a daily or monthly basis, whether it’s paying bills, forgotten subscription services, or too much takeout. Going forward with this information, you will be able to identify areas where you have been overspending and could afford to cut costs to save a few dollars. The money you save can then be used to prioritize your loan payments each month.
By downloading a budgeting app (opens in a new tab), like Mint, you can make the process of analyzing your expenses easier, as most do for you. Most also provide expert tips for managing money along with other notable features.
Automatic payment deductions
You’re probably already familiar with automatic bill payment, but did you know you can set it up for student loan payments too? Not only will this prevent you from missing a payment, but most of the time your loan officer will lower your interest rate if you choose to pay this way.
Make additional payments
Although obvious, one of the easiest ways to pay off your student debt as quickly as possible is to pay more each month. This means increasing your payment amount and trying to make payments every two weeks. Increasing the amount of your payments, even slightly, will still help you reduce your debt faster.
Of course, the increase in payments will depend on how much money you can afford to spend. This is where a budget comes in handy, as you’ll likely need to cut spending in other areas for it to work. However, keep in mind when making additional payments to make sure they go to your main balance and aren’t simply rolled over to the next month, resulting in a “paid in advance” status.
Plus, by increasing your payments, it will also help you fight off accrued interest on your loans. Interest rates on loans can be quite high, so the lower your total balance, the less interest you will have to pay. That’s why it’s important to reduce your balance as soon as you can.
Refinance for a lower interest rate
For those struggling to repay their student loan due to an exceptionally high interest rate, refinancing is an option. This could get you approved for a lower rate than you started with, allowing you to pay off that debt faster. When refinancing, you will probably want to have a credit rating (opens in a new tab) in the high 600s, as well as stable income to get the best rates. However, recent college grads generally don’t have very strong credit, so that’s something to consider when determining if refinancing is right for you.
Student Loan Forgiveness Programs
For those who qualify, there are several student loan forgiveness programs available to help take the burden off your college degree. Although not everyone can benefit from these benefits, you should still check if you are eligible for one of these programs.
For instance, Public Student Loan Forgiveness (PSLF) (opens in a new tab) is intended for individuals employed full-time by a U.S. federal, state, local, or tribal government or nonprofit organization. Eligible recipients must repay their direct loans with an income-based repayment plan and have made at least 120 payments. Your remaining balance will then be forgiven.
Overall, while Biden’s plan to forgive $10,000 in student loans for those earning less than $125,000 and $20,000 for those who received the Pell Grant is a step in the right direction, many of us still end up with huge student debt balances. That’s why it’s important to be ready when payments resume at the end of the year. The steps above are intended to help you control your student debt.