With education costs continuing to climb, student loan debt among Americans is piling up. According to the Department of Education, nearly 43 million borrowers owe more than $1.55 trillion in student loans, which has doubled in the last ten years. The magnitude of loan balances, combined with pandemic-related job losses, increased the call for student loan forgiveness. Don’t leave your financial future to chance. Politics are a guessing game. Instead, control what you can to put yourself in a better place. Listed below are five steps to take if you are considering how to manage the burden.
Understand current policies – Following the Coronavirus pandemic in 2020, the CARES Act was passed in March and set out specific benefits for student loan debt. It provided automatic suspension of principal and interest payments on federal student loans, with the original expiry date extended multiples times, now set for September 30, 2021.
During the suspension, the interest rate is 0%, and no payments are required, providing an opportunity to take advantage. Making payments during this period will allow you to pay off your loans faster because your entire loan payment is applied directly to the principal.
Know your situation- When you understand repayment options such as standard plans, extended plans, income-based plans, and other payment options, you regain control. If you are confused with the changing regulations, expert guidance is crucial. It is helpful to have someone review and lead you through repayment options to select the best plan for your situation.
Pay the maximum– Most people tend to use a specific percentage of their monthly income towards paying off student loans. However, if you can repay more, do it. Not only will it help pay off your loans faster, but you will be taking meaningful steps toward financial freedom. Look at your typical monthly expenses and decide whether some are necessary. If not, cut them out, at least until your loan balances decline.
Be intentional – Student loan debt can become a big part of your life. If you approach repayment passively, only doing the minimum required, the burden can prevent you from moving your life forward in myriad ways. The power of compound interest in investing is significant and accrues silently and effortlessly. The opposite force works against you when you are the borrower.
The more intentional your plan, the faster you pay off your loan and the less interest you will end up paying to your lender. Set a budget and stick to it. Being aware of your financial situation and the severity of your student loan debt will open your eyes and prevent unnecessary spending.
Don’t rely on continued forgiveness – Don’t get comfortable with paused payments with a 0% interest rate. Vaccine availability is widespread, the economy is reopening, and jobs are going unfilled. No one expects another extension. Waiting in the hope of a different outcome can be detrimental. By stopping, you are only prolonging the number of years trapped in debt. Instead, stick to your plan and make payments as you normally would.