CLEVELAND — Time is ticking for student loan borrowers, who are expected to pay their first loan payment in three years after the pandemic brought on a nationwide repayment pause.
According to the Preservation Retirement Services group, the average borrower in Ohio owes more than $30,605 in student loans. In addition, student loan repayment will cost households approximately $70 billion per year. Now many borrowers, depending on their established creditor, have just 21 days before their first payment is due this month, which will also reflect accrued interest starting from September 1, 2023.
“Economists are thinking about how that will affect the economy,” said Laura Schultz, Co-owner and Wealth Advisor at Preservation Retirement Services. “Will consumer spending slow down when folks have gotten so used to taking not having to pay for on their student loans since COVID?’
The impact on the economy seems unpreventable as borrowers look to readjust to the added cost of student loan repayment. As Schultz said, “It can be really scary, and it can be overwhelming.”
However, there are options and repayment programs that may provide relief for those who have not been able to prepare. Check out the tips from Schultz and her advisory team below:
What should borrowers know about the save repayment plan?
* The SAVE repayment plan stands for Saving on Valuable Education, and it is available to student loan borrowers making $60,000 per year or less.
* Through this program, monthly payments will never be more than 5% of your discretionary income. The previous limit was 10%.
* Individuals making less than $15 an hour, or approximately $32,800 will have a monthly payment of $0.
* The plan also includes $39 billion in automatic student loan forgiveness for over 800,000 borrowers who have been making payments toward their loans for 20 or 25 years.
To apply for the SAVE program, click here.
If a borrower can’t afford their payments, should they defer paying their loans?
* From October of this year to September of 2024, missed or partial payments from “financially vulnerable borrowers” won’t be considered delinquent, and the credit bureaus will not be informed.
* If you still cannot afford your payments after the “on-ramp” period is done, you can apply for deferment, which gives you one to three years of reprieve from loan payments.
* Financial advisors would encourage borrowers to pay whatever they can afford toward their student loans because interest will still accrue while your payments are on pause.
* If your financial situation has improved since you originally took out student loans, you can refinance to get a better interest rate.
* Do not refinance if you’re on an income-based repayment plan or if you qualify for government assistance on your student loans. Refinancing will turn your federal student loans into private loans, and you will lose those benefits
What other kinds of repayment plans are available to borrowers?
* The New SAVE plan is replacing the Revised Pay As You Earn Repayment (REPAYE). If you were on the old REPAYE plan, you should be automatically enrolled in the new plan, but you will need to verify your income to ensure you still qualify.
* Other borrowers can use a standard repayment plan, which offers fixed payments to pay off your loan within 10 to 30 years.
* Certain professions such as teachers and military veterans qualify for special programs that reduce or forgive a portion of your student debt.
* Volunteering for AmeriCorps programs can qualify you for a Segal AmeriCorps Education Award which you can put toward your student loans.
What else can borrowers do to help make repayment easier?
* Use a loan calculator to get a realistic idea of how much student loan debt you have and how long it’ll take to pay off
* Sign up for automatic payments to avoid missing a payment, which can cost you penalty fees and may harm your credit score.
* As an extra incentive, you’ll also get a 0.25% reduction on your current interest rate.
* If you’re currently in college, consider making monthly payments to pay off the interest accruing on your loans. Taking care of the interest right away makes paying off your loans more manageable in the long run.
* Don’t feel like you need to navigate debt repayment on your own.
* Paying down debt and planning for your future is a universal concern. The number one question we get from clients is whether or not they have enough.
