As you know, President Biden kindly extended the pause on federal student loan repayments to September 1. The act of grace was for those who are showered in high student loan debt. The law was a saving grace for many of us, taking away the pressure and fear of late penalties and allowing us to figure out a way to save to make our payment deadlines. Now, however, there is inflation to worry about.
As a recap, inflation is the reduction of purchase power. Inflation sadly impacts the interest rates we are given based on student loan payments.
Fortunately, if you took out a student loan prior to inflation increasing, you are sort of in the clear. You see, your interest rate is fixed. So all you have to do is pay the same amount during each month of the loan.
But, if you just took out student loans, or are on the verge of finalizing your loan plan, you might be required to pay more interest. As interest rates rise, so will student loans for new borrowers. However, the fine print lies in borrowers who took loans from private lenders like Sallie Mae and Earnest. Unsurprisingly, private loans will cost more as inflation changes. It becomes difficult when you realize that we are in a pandemic, on the peak of a recession, and income doesn’t change as fast as inflation.
It’s important to have your loan repayment plan on the top of mind for when the pause on payment is lifted. The worst thing that can happen would be you aren’t prepared and shocked at how much you owe. You should file away an amount, small or large, monthly in preparation to pay. And if you are getting anxious or don’t think you’ll be able to support your payments, you can always contact your student loan provider and see about switching to an income-based or income-contingent plan — that allows you to pay what feels comfy to your income.
The key to student loan repayment is that it’s as seamless as it possibly can be. For some, that might mean setting up auto payments. For others, that could be stashing away half of income monthly or quarterly. It isn’t a nice mentality to keep, but it’s important to be realistic and know your loans will be due eventually. Don’t wait till the last minute to make up your plan.
Of course, the general hope is that student loans will be cancelled for all, or at least the $50,000 that was promised to us in Biden’s campaign. Only time will tell.
Here’s some additional tips on how to pay off student loans.