Federal student loan forbearance ends on January 31, 2022. The government relief program was initially supposed to end in 2020 and although it’s been extended several times, it will not be extended again.
In other words, payments on federal student loans will resume in a few months. If your finances are tight, you might want to investigate personal loans for students. Switching your loan to a private lender will eliminate the possibility of losing your income tax refund or other federal aid if you default. That’s a worst-case scenario, but it’s best to take precautions.
How to Prepare for Student Loan Repayment
Those of us with federal student loan debt have adjusted to not having that extra payment come out of our accounts each month. As the end of the forbearance program approaches, there are certain actions we need to take to prepare for that financial burden again. And after many months spent not making payments, we can all use a reminder on how to do this.
- Confirm How Much You Owe: Do you remember how much you owe? It’s been nearly two years that interest rates on federal student loans have been frozen at 0%. Check your account to see what your current balance is. This is a good time to look at options for doing a lump sum payoff if that’s financially feasible for
- Create a Budget: This is something we should all do at the beginning of the year, regardless of whether we have student loan debt. Create a new budget on January 1st and include your monthly student loan repayments. Be sure to list all expenses, including non-essential payments, many of which can be eliminated in the next
- Cut Back Your Expenses: Examples of non-essential expenses include take-out food, entertainment, and expensive cable TV or mobile phone plans. Evaluate each of these and find areas where you can cut back. You may find the bandwidth to make those student loan payments without having to increase your
- Start a Side Hustle: The pandemic taught us that there are many ways to make money outside of working a traditional job. Opportunities abound, including freelance work, eBay selling, and dog walking. Find a side hustle that works for you. It will help you pay off those loans and cushion your bank
- Build Your Emergency Fund: Most financial professionals recommend that you put three to six months of expenses into a savings account to use as your emergency That’s a good guideline, but for some folks it’s not realistic. While paying off debt, save what you can and try not to withdraw the funds unless it’s a real emergency.
The Bottom Line: Evaluate and Adjust Your Personal Finances
You can apply these five steps to any type of debt, not only student loans. Practicing them regularly can help improve your finances and build your credit. Start with getting those federal student loans paid off. Continue the process by eliminating other debt and building your savings and investment accounts. That’s the road to financial well-being.