The Biden administration has just recently announced a student loan forgiveness plan that involves canceling up to $10,000 of federal loan debt for most borrowers, as well as up to $20,000 for those who received a federal Pell Grant in college. This relief will be limited to individuals earning less than $125,000 a year.
In addition, the pause on federal student loan payments has been extended through the end of December.
Although the partial forgiveness and extension provide temporary relief, it is crucial that borrowers still begin to prepare themselves for the eventual installation of monthly payments. Taking proactive steps to ensure you are financially prepared to manage your loans will help bring peace of mind and set you up for financial freedom in the future.
Here are five ways that you can begin paying off your federal student loans and effectively position yourself for future monthly payments.
- Assess your financial situation. Before you even begin to think about your future payments or what you may be able to put toward your loans, it is crucial to take some time to evaluate the current conditions of your finances. If you don't already have a budget in place — now is the perfect time to do so.
Ask yourself: What sort of recurring payments are you already committed to? Are there any subscriptions or unnecessary services you're signed up for? Use this time to ensure that you are ready for and capable of adding another monthly expense to your budget.
- Start small. When looking at the grand total of what you owe, it can be easy to feel like a final payoff is unattainable. Don't be discouraged. The best way to tackle this fear is to focus on one victory at a time — even if it's small.
Financial expert Dave Ramsey suggests utilizing the debt snowball method. When operating under this strategy, the goal is to work from your smallest debts up to your greatest debts. Paying off your lesser loans will not only help you feel accomplished, but will also keep you focused on the big picture of eliminating those larger loans.
Throughout this process, be sure that you are still keeping up with the minimum payments on all of your debts before putting extra toward the smaller loans.
- Sign up for automatic payments. One of the best ways to ensure that you don't miss a payment is to sign up for automatic debit. This allows the federal loan servicer to take the money out of your designated bank account on the exact due date. Just by signing up for this option, your interest rate will be reduced by 0.25%. Although it might not sound like a lot, over time it makes a difference. You can learn more about automatic payments on the Federal Student Aid website.
- Apply for an income-driven repayment plan. Most federal student loans are eligible for at least one income-driven repayment plan. There are four different income-driven plans available for borrowers. These repayment methods are intended to set the monthly payments to an amount that is affordable based on both income and family size. To see if you qualify, all you have to do is apply.
If you want to guarantee that you are getting the lowest payment amount based on your own individual circumstances, check out the Federal Student Aid's Loan Simulator. This is a great tool that provides a comparison of estimated monthly payment amounts for all federal student loan repayment plan options, including the income-driven plans.
- Research loan forgiveness programs. Depending on various factors in your living situation or even your career path, there's a possibility that you could qualify for a loan forgiveness program. There's a wide range of programs, including options for teachers and individuals who are employed by a government or not-for-profit organization.
If you meet the necessary standards, you could have the opportunity to have your loans partially or completely canceled, forgiven or discharged.
Thinking about the building interest and total amount of debt involved with your loans can be overwhelming. But if you are able to implement these steps, you will be well prepared to begin paying them off by the end of December.
Achieving full freedom from your debt may seem like an insurmountable challenge at the current moment, but doing everything in your power now will ultimately help you reach this goal. Years down the road, you will be grateful that you took the time and effort to set your future self up for success.
Dr. Kent Ingle serves as the president of Southeastern University in Lakeland, Florida, one of the fastest growing private universities in the nation. A champion of innovative educational design, Ingle is the author of "Framework Leadership.'' Read Kent Ingle's Reports — More Here.
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