The government has hit the snooze button on resuming federal student loan payments seven times since the CARES Act became law in March 2020. Whatever happens going forward and whatever your current situation, this temporary grace period on federal student loans is an opportunity to get your financial house in order.
Creating a plan of action 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 actions that can improve your overall financial picture—including debt management. Here are a few strategies that can help you take the next few months to save up, readjust your finances, and move forward toward your goals:
Plug in to your workplace benefits
Your employer might offer workplace 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 large purchase like a home.
Along with the temporary federal loan forbearance, the CARES Act also opened the door for companies to pay up to $5,250 toward student loans per employee, per year—meaning that employees would not owe U.S. federal income taxes on the payments companies make toward their student debt. However, this kind of direct employee assistance isn’t always available—in fact, before the pandemic, only 4% of employers offered student loan repayment assistance.
Whatever financial benefits your employer does or does not offer today, it can help to reach out and start a conversation about your student loans and wider financial needs. Many companies offer financial resources like educational webinars, planning tools, or live coaching that go a long way in terms of helping you create a personal plan to manage your budget, save for the future, and make progress toward all your goals—including paying down any student debt.
Find additional support
Along with your workplace benefits, if you have student loans, use this time to check out resources like the Consumer Financial Protection Bureau or the Institute for Student Loan Advice. Also consider reaching out to your loan servicer with questions or to find out about alternatives that can help you better manage your payments, like applying for a deferment.
Some borrowers choose to streamline their payments through loan consolidation or refinancing, but just be aware that these arrangements can sometimes stretch out the total time it takes to repay a loan, undercutting potential savings. You may also be eligible for alternative repayment plans, such as income-driven repayment plans.
Whatever choices you weigh, be sure to investigate how they will affect your interest rates and repayment schedule. The important point here is to make the most of outside resources as you think about how to handle your payments, whether that means making moves with your loan servicer or arming yourself with a deeper understanding of the details.
Reassess your budget and make a new plan
Part of making more informed decisions is taking the time to understand your full financial picture. You’ll want to be strategic about how you’re allocating your money to your debt, savings, and other goals, and be careful not to neglect long-term needs while managing short-term bills and payments.
Make a fresh budget that accounts for 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 distribute your monthly income to your various financial goals. Be realistic about your real-life 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 being charged, and what your required minimum monthly payments will be. Debts with the highest interest rates typically cost you the most, so it may make sense to focus on paying those off first. These concrete details will help you figure out how much time it will take to pay down your debt and reach your other financial goals. The average borrower takes on about $30,000 to pay for college, according to the College Board, and the Department of Education shows most repayment timelines last 10 years—or 30 for consolidated loans.
If you don’t have much wiggle room in your budget, look for ways you can make small changes to create a financial buffer for yourself. For example, maybe there’s a streaming service you’re not watching you can cancel, or days where you can cook at home instead of eating out. Even an extra $50 in your pocket each month could add up to an extra $600 saved each year. It can be tough to make changes to your financial habits, but it takes discipline to put your plan into action and build up toward your financial goals.
And don’t forget the fine print: If you moved, make sure that your contact information is up-to-date with your loan servicer and on any associated accounts. You may need to re-register or update your settings for automatic payments. And if you’re still on pause for making payments, you might consider starting again: Because the interest rate on loans will remain at zero, any payments you make during the forbearance period will go directly toward reducing the principal you owe.
This is prime time to make sure your personal administration is on point and you are organized and empowered to make financial decisions that work for you. Managing student debt will be a continuing challenge, but it doesn’t have to derail your financial life. Take this extended grace time get yourself in a position of greater strength so you can hit the ground running in your financial life.
Krystal Barker Buissereth is head of Financial Wellness, Morgan Stanley at Work.
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