7 Ways To Prepare for Student Loan Repayment

By Jake Guldin

The Forgiveness Plan That Almost Was

For millions of borrowers nationwide, President Biden’s student debt forgiveness proposal was a promising one. The plan, unveiled last summer, was set to eliminate anywhere from $10,000 to $20,000 in student debt per person, granting a reprieve for many burdened by the loans they took out in their youth. 

Then, the Supreme Court struck it down.

In a 6 to 3 decision, with an opinion penned by Chief Justice John G. Roberts, Jr., the Biden Administration’s initiative was deemed unconstitutional, with the court’s conservative majority ruling that the Secretary of Education lacked the authority to cancel the debt.

Now, with Biden’s effort nixed and loan repayments beginning in the fall, Americans are increasingly anxious — unsure of the steps they should take to prepare and unaware of the existing debt cancellation opportunities available to them. Fortunately, our experts have plenty of advice for those of you in this exact situation.

1. Update Your Contact Information

In the years since the COVID-19 pandemic swept the nation, you may have changed your home address, phone number or occupation, amongst other pieces of personal information. It is critical, then, that the contact information on file with your loan service provider and the government reflect any alterations made over the past 2.5 years.

Additionally, you should know that there is a chance that your loan service provider changed during the repayments pause; about 50% of borrowers have a new one.

This is of grave importance as, in the 60 days before repayment restarts, the U.S. Department of Education is going to send out numerous notices with the details of your loan payment amount and due date. If the contact information they possess is outdated, they will be unable to deliver your notices, making repayment more arduous than it already is.

“You don’t want to miss them because your payments are still due even if you don’t get a loan statement or a coupon book,” explained Mark Kantrowitz, author of "How to Appeal For More College Financial Aid."

2. Turn On Automatic Payments

By simply signing up for automatic payments, you can ensure that the money in your bank account makes its way to your loan servicer promptly. This will decrease the odds of a late payment which is especially useful for those who believe that they may forget about it.

For any skeptics, it should be noted that you will get an interest rate reduction of 0.25% should you decide to enroll in automatic payments. If you enrolled before the pandemic’s commencement, though, you will have to do so again.

3. Create a Descriptive Budget

Throughout the pause on student loan repayments, people across the country used the money that otherwise would have gone to the government for other expenses, including — but not limited to — monthly car payments, emergency medical procedures and leisure activities. As a result, large swaths of the U.S. population must attempt to reconfigure their budgets with the impending resurgence of monthly student loan payments in mind.

For many, it will not be easy. Making a descriptive budget, though, can be an immense help, granting a borrower the knowledge of what spending categories can be reduced to meet the minimum monthly payments in the coming months.

“The number one thing is to really do an extensive review of your discretionary expenses and your budget overall,” said Becca Craig, a wealth advisor at Buckingham Strategic Wealth.

In addition, Craig advises that borrowers take advantage of automated applications, such as Copilot Money, to make the process an easier one.

Kantrowitz echoes Craig’s sentiment, noting that other programs, such as Mint and Quicken, can similarly assist in the making of a descriptive budget.

4. Take Advantage of Income-Driven Repayment, or IDR, Plans

For those in dire, long-term financial straits, applying for an IDR plan could be of substantial value. Instead of paying the amount they owe monthly, eligible borrowers pay a small fraction of their discretionary income.

Additionally, if your income is less than 150% of the poverty line — which will soon increase to 225% — your payment will be calculated as zero.

Finally, it should be emphasized that after approximately two decades of consistent payments in an IDR plan, any remaining debt is automatically canceled. In fact, those who hit this benchmark during the pandemic are, thanks to another Biden Administration initiative, eligible for loan forgiveness. Moreover, the aforementioned zero-cost payments count as one, bringing you one step closer to leading a life with no more student debt.

Individuals who qualify for this will be contacted directly by their loan servicer.

5. Find Out if Your Employer Offers a Loan Repayment Assistance Program, or LRAP

If you are a government employee, you can probably take advantage of a student loan repayment assistance program, or LRAP. Though multiple factors, such as income, determine just how much assistance you will receive, the benefit of enrolling in one is undeniable.

And, for those working in the private sector, your employer may offer its own LRAP program — or something similar. It is therefore recommended that you approach your employer for details.

Employers can also help pay down your student debt thanks to a new provision of the SECURE 2.0 Act. Starting in January 2024, corporations will be allowed to match their employees' student loan repayments with contributions to their defined contribution plans, such as 401(k)s, meaning that you no longer have to choose between saving for retirement and paying off your student debt.

6. Learn if You Qualify for Existing Debt Cancellation Initiatives

At present, there are several programs, already approved by Congress, that can eliminate some or, on occasion, all of your remaining student debt.

One popular example is the Public Service Loan Forgiveness, or PSLF, program. This expansive initiative forgives student debt for first responders and those employed by not-for-profit organizations, amongst others.

“For over 25% of public student loan holders, their employment qualifies them for Public Service Loan Forgiveness,” Craig said.

Unfortunately, though, not many Americans are aware of its existence, reasoning that their income or employment status makes them ineligible for any form of student debt forgiveness. But, given the statistics mentioned by Craig, there is a strong chance that you qualify, so be sure to give it a shot!

Furthermore, be sure to evaluate how forgiveness programs operate at the state level as, due to alterations made by the Biden Administration, you may now qualify for PSLF or a similar initiative. In the past, for example, hospital employees in both Texas and California were considered contractors, making it impossible for them to enroll in PSLF. This, fortunately, has now changed.

7. Be Aware of Available Discharges Should Disaster Arise

If tragedy strikes, you must utilize discharge programs. Meant to mitigate the economic strain induced by unforeseen and equally devastating events, these initiatives (Loan Discharge Due to Death, Total and Permanent Disability Discharge, etc.) are ones to remember, even if they seem macabre.

“Death might come before long-term loan forgiveness,” said Jason Anderson, a finance faculty member at the University of Kansas School of Business. “We don’t ever want that, but they do need to know that that is a door that they may walk through. And I’ve found that, actually, many of my clients that are in those scenarios have a lot of peace of mind in that death is something that will wipe [student debt] away.”

Some Final Advice for Soon-To-Be College Students

Across the United States, rising college freshmen are, likely with their parents, taking out a federal student loan to help finance their education. If they wish to avoid the headache that is decades-long student loan repayment, they should keep a few things in mind.

Firstly, the loan’s interest rates fluctuate yearly. That said, once a loan is taken out, the interest rate is fixed for its entire lifetime. In 2023, however, they are bound to be extremely high as a result of the country’s current economic situation.

“The new rates are going to be a little bit higher than in the past,” Kantrowitz said. “Around 5.5% for undergraduate students, a little more than 7% for graduate students and the Parent PLUS loan will be a little more than 8%.”

With that in mind, it could be advantageous to hold out on taking a loan until interest rates decline. If that is not possible for you, though, just be aware of what you are getting yourself into.

It is also best to only borrow the amount that you need to get through your collegiate years. Though it may be tempting to take out more so that you do not have to pay more out of pocket, such a choice will undoubtedly lead to regret once it is time to pay down the debt.

Finally, attempt to have less student loan debt than your annual starting salary, as doing so bolsters the odds of you being able to pay off the loan in 10 years or less, effectively circumventing the need to pursue loan forgiveness programs and making defaults, for example, a near impossibility.

The Street’s Retirement Daily published this article on July 27, 2023.