Need to Refinance Your Student Loans? Here’s Tips for the End of the Payment Pause

Here are 10 things you can do now before payments start up again, according to this bestselling author and student-loans expert

If you’ve enjoyed a vacation from your student loans thanks to the federal government’s two-year pause on these payments, it’s important to shift gears and start prepping for what comes next, as the current pause lifts August 31, 2022.

Missing a loan payment has consequences, and before the pandemic, when borrowers were late with a student loan payment, they were most likely to be late with the very first payment at the end of the 6-month grace period you get after graduation.

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To avoid a similar effect with the restart of repayment, you want to be on time with payments and have a plan for making future ones, too. I’ve advised generations of students on how best to handle student loan payments and I’m regularly called upon by leading newspapers and magazines for guidance on this complex subject. My checklist can help you stay on the right path, whether you’re resuming federal loan payments, brand new to paying off your student loans or even paying off private loans.

The resumption of payments might seem like bad news, but here’s the bright side: The Biden administration’s “fresh start” initiative will return all federal student loans to a current status, even if they were delinquent or in default before the pandemic. The delinquencies and defaults will be removed from your credit history. You could end up with a higher credit score which may enable you to qualify for new credit or to pay a lower interest rate on your current loans.

Here are the most important actions you can take starting now:

1.Track the student loan payment pause

Will there be a seventh extension to the federal student loan moratorium that suspended repayment and temporarily set the interest rate to zero back in March 2020? It seems likely because restarting repayments in September, two months before the midterm elections, would be politically unpopular. Still, it’s important to not be caught off guard when payments do resume in the instance that you’ve moved and any notices from the Education Department fail to reach you.

2.Update your contact information

The Department of Education will send you at least six notices starting about two months before the restart of repayment. If they don’t have your current contact information, you won’t learn about your new due date and the amount due. You also won’t learn about student loan forgiveness, if it happens. So, check your contact information on both the loan servicer’s website and on studentaid.gov.

3.Set reminders for yourself

Your new payment due date may be the same as your old payment due date, but regardless of that, put a reminder in your calendar at least a week before the due date. Your payment will still be due even if you don’t receive a loan statement or coupon book, so don’t wait for those items to prompt you.

4.Sign up for autopay

If you’re getting your monthly student loan payment automatically transferred from your bank account to the loan servicer, that’s great. You remain in control of the process and can stop it at any time. But, even better, sign up for autopay if you haven’t already. Autopay makes it much less likely that you’ll be late with a payment. Your payment will happen on time, even if there is confusion over your actual payment due date. Moreover, borrowers who sign up for autopay will save money, since the loan servicer will reduce your interest rate by 0.25% as an incentive. If you are already signed up for autopay, you may need to confirm to the loan servicer that your bank account information has not changed.

5.Budget for the restart of repayment

You have time now to find a budget method that works for you, such as tracking your spending for a month, assigning each expense to a broad category like food, housing, transportation, entertainment, medical care and insurance. Also tag each expense as mandatory (a need) or discretionary (a want). At the end of the month, total up your spending in each category. Just being aware of your spending patterns can help you exercise restraint. Importantly, this descriptive budget will also help you identify spending that can be cut to find the money to make your student loan payments.

6.Make some extra money

If your budget doesn’t leave any room for student loan payments, you could try to find ways to increase your income enough to cover the student loan payments. Easier said than done, sure, but with low unemployment rates, employers are more likely to increase salaries, so go ahead and make the case to your boss for a pay increase. Some companies are also adding student loan repayment assistance programs, so it’s good to inquire with your benefits department. Otherwise, it may be a good time to look around for a new job that pays better or consider additional part-time work.

7.Raise funds other ways

You may need to get creative to pull together the funds you need to get off to a good start repaying your student loans. You might have accumulated things you don’t really need during the pandemic and you could sell them on eBay or Craigslist. If you don’t really need a car right now, it would be a good time to sell it as the value of used cars is high now and dealerships are actively looking to purchase them.

8.Start saving now

You can ease into the restart of repayment by saving the money you would otherwise pay toward your student loans. Start off this month by saving a quarter of your student loan payment. Increase it to half of your student loan payment next month, then three-quarters the month after that, and finally the full payment amount. This will also provide you with a buffer for the restart of repayment if there’s not enough room yet in your budget for making a full payment. Save the money in a bank account or high-yield savings account to earn the most interest you can.

9.Get out ahead of the fresh start

You don’t want to be among the many borrowers rushing to call the loan servicer the day after repayment restarts. So if you don’t have a job, are struggling financially, or expect to be on medical or family leave, contact the loan servicer now to explore your student loan repayment options when the payment pause ends. The economic hardship deferment, unemployment deferment and general forbearances are good options for short-term financial difficulty. Income-driven repayment plans are good options for long-term financial difficulty and can also be used if you’ve exhausted your deferments and forbearances. If your income is less than 150% of the poverty line, your monthly payment may be zero under an income-driven repayment plan.

10.Beware of student loan scams

With all of the uncertainty and confusion about the restart of repayment, there will be many scams. Do not pay a fee to anybody to suspend repayment on your student loans or to apply for loan forgiveness. The federal government provides these services for free, though the studentaid.gov website.