A dreaded day for some Americans looms on the horizon — Oct. 1 marks the first day millions of borrowers will be required to restart their federal student loan payments.
Payments have been on pause due to the COVID-19 pandemic. But in Aug. 2022, a glimmer of hope appeared for more than 43 million borrowers nationwide: a plan from President Joe Biden that would erase $10,000 in student loan debt, and even up to $20,000 in certain cases.
That order, however, was overturned by the U.S. Supreme Court in June by a 4-3 vote. Meanwhile, the Department of Education announced an end to the moratorium on federal student loan payments. As of Sept. 1, interest on federal student loans has started accruing, while payments themselves restart on Oct. 1.
But after all this time, what do these deadlines really mean for borrowers? In California alone, an estimated 3.8 million residents owe more than $142 billion in federal student loan debt. Wondering where to get started? KCRW caught up with NerdWallet personal finance expert Kimberly Palmer to help borrowers plan for their financial future.
Get familiar with what you owe (again)
The first item on your to-do list is to reacquaint yourself with how much you owe and who your lender is. The U.S. Department of Education recommends borrowers immediately login to their Federal Student Aid website and update any pertinent contact information, including your email, phone number, and address. There, you can also find out who your student loan servicer is and explore repayment options, including auto-pay and even income-driven repayment plans.
Borrowers should receive their first student loan bill within 21 days of its due date, and that’ll include how much they owe and other important information about the loans.
Some borrowers are also eligible for the so-called “on-ramp transition period,” which will temporarily protect them from being reported to credit agencies due to missed, late, or partial payments. According to the Department of Education, “if your loans were eligible for the payment pause, you are automatically eligible for the on-ramp.”
Interest will, however, still continue to accrue however during this period. The on-ramp period lasts through September 30, 2024.
One of the biggest pitfalls Palmer says she’s seen is individuals avoiding payments due to feeling overwhelmed: “That is really, in some ways, the worst thing you can do yourself, because then not only do they add up, but you can hurt your overall financial situation and just exacerbate that stress.”
Break it down (instead of breaking down)
One look at the full sum of what you owe in federal student loans can feel anywhere from paralyzing to meltdown-inducing, so Palmer recommends breaking down what you owe on a monthly basis.
“By breaking it down into looking at the next month, the next three months, instead of thinking about the whole big picture of what you owe can be a way of making it feel a little bit more manageable and not getting totally overwhelmed,” Palmer explains.
She adds that it might also be prudent to reexamine your other financial responsibilities, especially if you’ve taken on new expenditures over the last few years. That includes how much you spend on food, transportation, new streaming or subscription services, or even other loans, such as car payments. The easiest way to do that is just by writing down everything you spend your hard-earned cash on.
“Literally write down everything that you've spent money on. And as you go forward over the next few weeks, until the repayments begin again, track your money. Then you can take a closer look at where you might be able to cut back because sometimes we don't even realize what we're spending money on are the small things that really add up to a significant amount.”
Palmer says a great way to look at budgeting is to use the 50-30-20 approach, where 50% of your take home pay is used on basic needs, 30% goes towards wants, and 20% goes towards debt payments and savings.
There’s no shame in the repayment game
Palmer says that borrowers often feel shame and embarrassment over the types and amounts of loans they may have. In turn, they may never talk about that financial stress. Instead, she recommends talking to loved ones about your situation.
“We don't realize that other people are in the same situation as us and we can actually feel a lot more supported by talking about it. So I would definitely encourage people to talk to your friends, talk to your family members, and get that emotional support that you need, as you're figuring out how to handle all of these changes and taking on these came in again, because it is very stressful. So we definitely need that support.”