With student loan payments put off again, don’t forget tips to navigate days ahead
Just in case you’ve forgotten, there’s a student loan crisis in America. The amount owed in the U.S. is over $1.5 trillion dollars! (Yes, that’s with a T!) There hasn’t been a lot of attention given to that figure during 2020 and 2021 because of the COVID-19 pandemic, and with good reason. In March of 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act—also known as the CARES Act. You probably remember that because of the stimulus checks you received.
One aspect of the help offered to students with federal student loans was a pause in their payments along with resetting the interest rate to 0%. Whew! That was a relief. The pandemic forced us to focus on things more important than student loan payments, and that’s good. However, those payments just didn’t magically go away—they were just paused. The idea was to provide financial relief for borrowers so they could get their minds off student loan payments and instead focus on basic living expenses. That all sounded great!
One of President Biden’s first acts upon taking office in 2021 was to extend the student loan payment pause. In August 2021, the U.S. Department of Education announced an extension of the student loan payment pause that continued the suspension of federal student loan payments, a 0% interest rate, and a halt on collections on defaulted loans. That still sounds great! But wait—all of this payment pause was scheduled to come to a screeching halt on January 31, 2022, before it was extended Wednesday.
In May of 2022, the huge engine of student loan collections will roar back to life. Students with federal student loan debt will begin to get bills in the mail again. Interest rates kick back in. Loans that went into default since March 13, 2020, will be returned to good standing.
The Student Debt Crisis Center recently released the results of a survey of over 33,000 student loan borrowers. Here are few of the highlights:
• 89% of fully-employed student loan borrowers are not financially secure enough to resume student loan payments
• 27% say that one-third of their income or more will go toward student loan debt payments
• 44% say they cannot afford their monthly student loan payments or are in default
• 45% say their financial wellness is currently poor or very poor
This is a recipe for financial disaster. In fact, there were over 7.7 million federal student loan borrowers who were behind on payments at the start of the pandemic. Almost two years later and 93% are still behind. That’s not good.
Here are three tips for navigating the difficult days ahead whether you have student loans or not:
Tip #1: Follow the 7 Baby Steps
Baby Steps 1 and 2 are essential in these trying financial times. Get $1,000 in the back as quickly as possible to start your emergency fund—that’s Baby Step 1. Baby Step 2 is to pay off all your debt, including student loans, from smallest to largest. You need to get out of debt to get more margin in your budget.
Tip #2: Get Motivated and Get on a Budget
A budget is a plan for how you’re going to spend your money each month. Seeing all your bills in one place allows you to see how far the money you’re brining in will go. If you find you have more month than you have money, you need to get motivated to find extra work to bring in more income during this season.
Tip #3: Become an Advocate Against Student Loan Debt
Use your frustration and anger from your experiences with student loan debt to help future generations avoid student loan debt. The Borrowed Future documentary uncovers the dark side of the student loan industry and exposes how the system is built to work against you. Check it out.
Don’t let the pandemic pause put a pause on taking control of your money. It’s your money, after all, and you should be the one who’s in control of where it goes!