Interest will once again accumulate on federal student loans in September
and October.
Loan repayments are set to be scheduled.
This marks the end of a three year pause on growth
that started under former President Trump as a response to COVID lockdowns.
The fact that they stopped
for three years in the first place is a once in a lifetime thing.
It's never happened before and almost certainly will never happen again.
So it's just sort of, you know, it's time to move forward.
Betsy Mayotte is the founder of the Institute of Student Loan Advisors.
After the Supreme Court struck down President Joe Biden's attempt at broad
federal student loan relief this summer, millions of borrowers
are now having to gear up for repayments once again.
Here are five things borrowers should know as payments resume.
The 2023 economy is different than the pre-COVID economy,
when many borrowers were last making repayments.
And for those borrowers, what I'm hearing is some of them
are having difficulty trying to fit that
payment back in the budget for a variety of reasons.
Things like lettuce and rents are a lot
more expensive than they were three and a half years ago.
There are also could have been a change in income circumstances
since prior to COVID.
Maybe there was a job loss or a job reduction.
Or maybe they've had a child or two or three during the pause.
And then the other thing is what I'm calling reverse lifestyle creep,
where they just sort of the the money that they had
used to set aside for their payment has sort of been absorbed by other things.
And borrowers who graduated in the COVID era have never had to make
a loan repayment.
And those borrowers just
sort of don't know where a lot of them just sort of don't know where to start.
There are tools borrowers can use to figure out the payment plan
that's best for them, regardless of how much they owe.
There are payment plans, especially if your income is low
that can result in a $0 payment.
So don't assume that your student loan payment is going to be unaffordable.
The number one commandment with student loans
is thou shall pay the least amount over time, especially lately.
You know, people get caught up in the word forgiveness because there has been
a lot of discussion about loan forgiveness and loan forgiveness programs.
And for some people, pursuing a loan
forgiveness program is the way to pay the least amount over time.
But for most other borrowers, it's going to be paying their loans off
as aggressively as possible to reduce total interest costs.
One of the mistakes I see people make, especially recent grads,
is they sort of pick the payment that works best for them.
And often because they're just starting out, it's the lowest payment they can get.
And then they sort of set it and forget it.
And then all of a sudden it's eight
or nine years down the line and they're like,
wait a minute, why do I still owe so much when I've been paying for so long?
So in addition to looking at both the short and the long term strategy
borrowers, I really like to see borrowers get in the habit
of reevaluating their strategy on an annual basis.
The Biden administration's new plan, called the saving on valuable education
or save plan, offers borrowers some relief.
What makes the Save plan unique
and more beneficial to a lot of borrowers is a couple of things.
Number one, for most members, not all, but for many borrowers,
the save plan is going to end up being a lower monthly payment
than the other income driven plans where the other big ticket item with SAVE
is that it has a very generous interest subsidy.
So for borrowers whose calculated save payment
is less than the amount of interest they're accruing every month,
their balance isn't going to go up.
The government's going to pay the difference in interest.
Borrowers may qualify for different repayment schedules
then from before the pause because life circumstances change.
The first step, I think, really is to even take a step back
from the student loans and do a budget.
When was the last time any of us actually did a budget?
And then, you know,
look at your student loan payments and how much can you comfortably afford?
Tools that can help you figure that out.
Is the calculator on the Department of Ed website, which is Student Aid Ncov.
What I love about that calculator is you just have to plug your stuff in once
and then it spits out everything.
All the plans are eligible
for what the monthly payment is, whether it might result in forgiveness.
And the most important fields on that
chart are how much it's going to cost you out of pocket over time.
The start of repayments again is going to affect some more than others.
People that the difference between paying their student loan
and not paying their student loan and whether they paid their light bill or not,
that's who it's going to affect the most.
The people that live paycheck to paycheck,
maybe they live in a high cost of living area.
Their income is low for that area.
Those are the people that even the income driven plans
sometimes aren't as beneficial as they need them to be.
The other category of people that have
always struggled more than the others, so they have debt and no degree
and they might only owe ten or 20 grand
and they're more likely to struggle with making their student loan payment.
The other category of borrowers that historically have always struggled
the most and I expect will continue to do so once the spigots turn back on
are seniors still loan borrowers are still looked at
by most people, voters, policymakers as a young person's issue.
Right? They're visualized as 20 somethings.
The fact of the matter is half of all student
loan borrowers are over the age of 30, a quarter are over 45,
and the fastest growing population of borrowers that are struggling
and carrying student debt is the over 60 fives.
Experts like me on expect President Biden to seek some form of student
loan forgiveness
through a negotiated rulemaking process which can take up to a year.
And if that doesn't work, the Education Department can propose
another form of student debt forgiveness that would give relief to millions.
For the PBS NewsHour, I'm Nicolle Wallace.