Federal student loan payments are coming back, and they’re going to wreak havoc on borrowers’ budgets.
Interest accurals resume on Sept. 1 and payments will be due in October for the first time in over three years.
But over half of borrowers (56%) say they will be forced to choose between making their loan payment or covering necessities, like rent and groceries, when the pandemic forbearance ends, according to a new survey from Credit Karma.
The finding is in line with what the Biden administration and many experts have long feared. Though the brunt of the pandemic is in the rearview mirror and inflation is down from its meteoric rise last year, resuming student loan payments is likely going to hurt millions of households that had found some financial security over the past three years.
Cutting back on nonessential spending will be the most typical way borrowers will adjust to make their student loan payments, according to Credit Karma. But there are only so many expenses you can eliminate.
Here’s how borrowers are planning to make ends meet, along with some tips on creating more room in tight budgets.
Even higher earners will struggle when payments resume
Unsurprisingly, 68% of borrowers with household incomes under $50,000 say they’ll have to choose between keeping up with their loan payments and buying necessities, Credit Karma finds.
But a large portion of high earners also expect to struggle — 45% of borrowers with household incomes of $100,000 or more say they’ll be forced to make those hard choices.
Other debts may be part of the issue. More than 50% of borrowers say they’re struggling to pay auto loans, mortgages, credit card balances or other bills, according to Credit Karma.
One option that could especially help lower-income borrowers is to apply for an income-driven repayment plan. Under the new Saving on a Valuable Education IDR plan, families of three or more who earn $50,000 or less may qualify for a $0 monthly payment, for instance.
Still, only 34% of borrowers say they’ll apply for an IDR plan to lower their monthly payments, according to Credit Karma.
Nearly half of borrowers expect to go delinquent
Though 72% of borrowers say they will prioritize their student loan payments over other debts, many still expect they won’t be able to make payments and could see their loans enter delinquency. In fact, 45% of borrowers expect their loans to go delinquent when the forbearance ends, the survey found.
The good news is, that will take a while.
The Biden administration has instituted a 12-month on-ramp period that allows borrowers to miss or make late payments on their loans without being considered delinquent or getting reported to credit agencies until the end of September 2024.
Still, interest will continue accruing. Borrowers should make every effort to stay on top of all their obligations to avoid more financial turmoil, such as a drop in credit score or bills getting sent to collection agencies.
3 tips to manage student loan repayment and other bills
Many federal borrowers hoped to see some of their debt forgiven before payments resumed, which could be contributing to the stress of the forbearance being lifted. But while they wait for the possible advent of a new forgiveness plan, they’ll have to find ways to manage repayment.
Here are three tips to help you get ready for repayment and keep all your debts in good standing.
1. Use federal loan protections to your advantage
It might not feel like federal student loans are your friends, but they do come with a little more leniency than private loans.
From the on-ramp period to IDR plans to forbearance and deferment options, there are a number of resources at your disposal to keep your loans in good standing even if you can’t afford your monthly payment.
Talk to your loan servicer as soon as possible to find the best solution for your situation.
2. Negotiate bills like rent
You may be able to lower your monthly rent simply by asking. While it’s not a foolproof method, it doesn’t hurt to try.
It helps if market research shows rent has decreased in your area or that you’re paying more than people in similar units near you. But even if that’s not the case, you may still be able to get a better deal or secure other benefits like upgrades or repairs.
Other bills you might be able to negotiate include your cellphone plan, your cable and internet service, and medical bills.
3. Audit your discretionary spending
A relatively simple way to lower your monthly spending is to take stock of all the subscriptions you’re paying for, decide which ones are worth it to you and cancel the rest.
Streaming services may be a prime place to start, especially with Disney+ and Hulu announcing price increases. While an extra dollar or two may not break your budget, if you subscribe to several different platforms, your total spending could have increased pretty significantly in the past year.
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