The government has pressed the snooze button seven times to resume federal student loan payments since the CARES Act took effect in March 2020. Whatever happens in the future and whatever your current situation, this Temporary grace period on federal student loans is an opportunity to get your house financing in order.
Creating an action plan can put you back in the driver’s seat, and you don’t have to wait for the government (or anyone else) to take positive action that can improve your overall financial situation. , including debt management. Here are some strategies that can help you take advantage of the next few months to save, readjust your finances and move towards your goals:
Log in to your benefits
Your employer may offer benefits that can help you manage your student debt as well as other financial goals like retirement, creating an emergency fund, or saving for a major purchase like a house.
Along with the temporary federal loan forbearance, the CARES Act also opened the door for businesses to pay up to $5,250 in student loans per employee per year, meaning employees wouldn’t have to. pay federal income tax in the United States on payments companies make for their student debt. . However, this type of direct employee assistance is not always available. In fact, before the pandemic, only 4% of employers offered student loan repayment assistance.
Whatever financial benefits your employer may or may not offer today, it can be helpful to reach out and start a conversation about your student loans and broader financial needs. Many companies offer financial resources such as educational webinars, planning tools, or live coaching that go a long way in helping you create a personal plan to manage your budget, save for the future, and make progress toward all of your goals, including reimbursement. any student debt.
Find additional support
In addition to your benefits, if you have student loans, use this time to consult resources like the Consumer Financial Protection Bureau or the Institute for Student Loan Advice. Also consider contacting your loan manager with any questions or to find out about alternatives that can help you better manage your payments, such as requesting a deferral.
Some borrowers choose to streamline their payments through loan consolidation or refinancing, but just be aware that these arrangements can sometimes lengthen the total time it takes to pay off a loan, reducing potential savings. You may also qualify for alternative repayment plans, such as income-driven repayment plans.
Whatever your choices, be sure to study how they will affect your interest rates and repayment schedule. The important point here is to make the most of outside resources when thinking about how to manage your payments, whether that means reaching out to your loan manager or arming yourself with a deeper understanding of the details.
Reevaluate your budget and make a new plan
Part of making more informed decisions is taking the time to understand your complete financial situation. You’ll want to be strategic about how you allocate your money to debt, savings, and other goals, and be careful not to overlook long-term needs while managing short-term bills and payments.
Make a new budget that takes into account your income, debts, fixed monthly living expenses, any side jobs, savings goals, and any other financial obligations. Take advantage of free tools like online debt calculators, retirement calculators, and budgeting apps to figure out how to split your monthly income between your different financial goals. Be realistic about your real needs and wants, whether you’re moving to a new city, starting a family, traveling abroad, or building up savings.
Use this grace period to confirm exactly how much student debt you still owe, how much interest you are charged, and how much your minimum monthly payments are required. Debts with the highest interest rates usually cost you the most, so it might be a good idea to focus on paying off those first. These concrete details will help you determine how long it will take you to pay off your debt and reach your other financial goals. According to the College Board, the average borrower takes about $30,000 to pay for their education, and the Department of Education says most repayment terms are 10 years, or 30 for consolidated loans.
If you don’t have much wiggle room in your budget, look for ways to make small changes to create a financial reserve. For example, maybe there’s a streaming service you don’t watch that you can cancel, or days when you can cook at home instead of eating out. Even an extra $50 in your pocket every month could mean an extra $600 saved every year. Changing your financial habits can be difficult, but it takes discipline to put your plan into action and make progress toward your financial goals.
And don’t forget the fine print: if you’ve moved, make sure your contact information is up-to-date with your loan officer and on all associated accounts. You may need to re-register or update your settings for automatic payments. And if you’re still paused to make payments, you might consider starting over: since the interest rate on the loans will remain at zero, any payments you make during the forbearance period will go directly to reducing the principal. that you must.
Now is a great time to make sure your personal administration is on point and that you are organized and empowered to make financial decisions that work for you. Managing student debt will be an ongoing challenge, but it doesn’t have to derail your financial life. Take advantage of this extended grace time to put yourself in a position of greater strength so you can get started in your financial life.
Krystal Barker Buissereth is Financial Wellness Manager, Morgan Stanley at Work.
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