Chance for student loans to save money before payments resume

Most people burdened with student debt stopped their payments as soon as they could, under a massive moratorium that began in March 2020. But not Terry Lakins.

“I still think I’ll still be in debt if I have to pay,” said Lakins, who graduated from the University of Michigan-Dearborn in late 2019.

But he feels far less overwhelmed than many borrowers who will start making payments again from February. The payment pause for federal student loans, the limited 0% interest and the collection freeze for defaulted loans now only run through 31 January.

Lakins had approximately $ 20,000 in student debt when he graduated. Now it’s only $ 7,500.

“The pandemic happened and that put a lot of things on hold,” said Lakins, 31, who has a Bachelor of Arts degree with a major in journalism.

He has not yet found a job in his professional field. Although he had worked through his 10 years of schooling, he lost his job at the Tandy Leather Craft Store in Livonia for a few months during the closings caused by the coronavirus. There he resumed his work.

He experienced the painful loss of both of his parents. His mother fell ill after his father died in June 2019. At the age of 58, his mother suffered a heart attack in December 2020. She died of a broken heart, he says after losing her husband.

Even during the hardships, one day he somehow started to think that the 0% temporary interest rate on his student loans could be to his advantage. Anything he paid would benefit capital since interest rates did not rise.

His savings had skyrocketed while he was out of work for a while, and he really didn’t spend like many in the early days of the pandemic. He would write a note to mark milestone payments.

“I never thought it was wise what I do with my debts. I was just doing it at the moment, ”said Lakins, who lives in Dearborn Heights.

The payments were made randomly. If he wanted to send $ 300, he would. Later, if he felt like sending $ 1,000, that’s what he would do.

His thought: “I have this money, maybe I should invest it in something that will help me in the long term.”

Borrowers with federal student loans would have been in the hot spot to resume their payments in October. But in August borrowers were given six months to breathe. It will be billed as the last break.

Make no mistake, these student loans were not granted. Forgiveness isn’t around the corner anytime soon as there is a lot of haggling – and resistance – over what kind of forgiveness could be granted from Washington.

The widespread financial hardship of Spring 2020 is over and there is no longer a need to suspend payments as the U.S. economy strengthens and jobs rebound.

More:Student loan interest rates rise as colleges resume personal tuition

More:Student loan forgiveness has stalled, but Biden is continuing the COVID-era payment freeze

“It looks like unemployment rates for University graduates will normalize by the end of the year, eliminating the need for extraordinary measures like the payment break and interest waiver, “said Mark Kantrowitz, student loan expert and author of How to Appeal for More College Financial Aid.

While some borrowers may feel stressed out, most of them do not need emergency response measures.

In this photo taken on Friday, May 21, 2021, a customer walks behind a sign in a Nordstrom store looking for employees in Coral Gables (AP Photo / Marta Lavandier, File)

A positive sign: The deferral and default interest for borrowers who were not eligible for the payment break and the interest waiver by the federal government have normalized for much of the year this year, said Kantrowitz.

That is based on data published by the US Department of Education and on data for private student loans that are included in the 10-Q and 10-K filings.

Private student loans and commercially held federal loans under the federal program for family education loans were not eligible for the pandemic-related payment relief.

Which steps make sense now? Short answer, pay off expensive credit card debt, cut down on other expenses and expenses now, research your options.

And yes, if you can, pay for those federal student loans. Only 1.2% of borrowers continued to make payments on their eligible federal student loans. About 500,000 direct borrowers decided from the payment hiatus and paid their loans on March 31, according to the US Department of Education.

On August 6, the US Department of Education announced that it would work to smoothly transition borrowers into repayment, including improving student loan servicing. The department will start getting over the borrowers “Final extension in the coming days” and how you plan to hit that button to restart the payment.

The outstanding government student loan portfolio is $ 1.59 trillion with 42.9 million borrowers.

Here are some strategies for what to do:

Take a close look at your budget

Where can you find $ 400 a month on your student loans next year if you paid that before the pandemic?

Failure to repay a student loan can have serious financial consequences for borrowers, including collection fees, garnishments, and withholding from income tax refunds, social security, and other federal payments.

Jeff Arevalo, a financial wellness expert at GreenPath Financial Wellness, said it was important to review your income and other expenses such as housing, transportation, childcare, and payments for other debts such as credit cards and car loans.

Once a borrower’s full financial picture is assessed, it becomes clear how much disposable income can be allocated to student loan payments.

“If you’re working between jobs or working short-time, an indulgence could help you pay rent, utility bills, grocery bills, build an emergency fund, or pay off debts,” Arevalo said.

GreenPath offers first Advice on student loans free of charge as part of the advisory service; There is a $ 200 fee to support an extended student loan. Those concerned about student loans or total debt can contact GreenPath at 866-648-8122 or visit

Take a look at different payment options

If you are concerned that you will not be able to afford payments under a standard 10 year repayment plan, consider several possible options that offer a lower monthly payment.

The U.S. Department of Education outlines options below and the page has a “Loan Simulator.”

You may be able to pause federal student loan payments by taking advantage of the economic benefits Deferred hardship or a Postponing unemployment. But interest rates will rise in many cases, such as unsubsidized loans.

You see eight different types of the repayment plans for federal student loans. In general, Kantrowitz suggests that borrowers go for the amortization plan with the highest monthly payment they can afford in order to save the most money overall by paying off debt faster.

Consider resuming payments now

When you are in good financial shape, set aside some cash for your student loans.

“People should really use this time to get financially fit,” said Robert Humann, chief revenue officer at, which offers an online marketplace for shopping for prices.

He suggests that people set goals, pay off more expensive credit card debt, and consider refinancing expensive personal student loans at historically low interest rates.

Refinancing rates for 10-year fixed-rate student loans average 3.43% in the week of August 2, down from 3.52% the previous week and 4.25% a year ago. The previous record low of 3.50% was in the week of June 14, according to The price you qualify for will depend on your creditworthiness, with higher ratings translating into lower prices.

If you can, Humann suggests, start paying off federal student loan debt now, when every dollar goes towards your main balance.

Kantrowitz said if you want to resume payments now, you will have to make those payments manually. Contact the loan service provider for information. If you forget who your servicer is, log into your account at or call 800-433-3243.

Kantrowitz said he wouldn’t necessarily suggest resuming payments at this point.

“Yes, the payments go entirely towards the principal, but that’s no different than if you make a one-off payment on February 1st before the interest is due again. So save the money and earn a little interest on it, ”Kantrowitz said.

Many could save more money overall, Kantrowitz said by expediting the repayment of loans with the highest interest rate – usually private student loans or credit cards.

We’re talking about a six-month window of opportunity to get things back on track. Why wait to think about what to do next with those dreaded student loans?

ContactSusanne Tompor: [email protected]. Follow her on Twitter@tompor. To subscribe, please go to R.Continue reading shop and sign up for ours Business newsletter.

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