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Surviving the Squeeze: How to prep for paying off your college loans

Though the Jan. 1 deadline has been extended to June ahead of challenges to Biden’s Loan Forgiveness Plan, an expert offers some helpful tips on how to save.

GRAND RAPIDS, Mich. — After the U.S. Department of Education announced another extension to the August 2020 moratorium that placed a pause on student loan repayments, college graduates still burdened by debt are able to breath another sign of relief.

It comes after the Biden Administration has been sued by multiple GOP states that allege their student loan forgiveness program announced back in August was unconstitutional.

The statement from the Department of Education Tuesday stated that if the forgiveness plan is not implemented and the litigation has not been resolved by June 30, 2023, then payments will resume 60 days later.

But to people like 2020 Grand Valley State University graduate Abby Mitchell of Portage, MI, the more than $76,000 debt looming over her can be a lot to handle.

“I didn't have any knowledge of loans – I just wanted something to help pay for college, because I wanted to go get a degree to get a job where it would support me down the road,” she said.

Mitchell graduated with a Bachelor of Science degree in psychology in April 2020. Her diploma was able to help her land a job in the mental health field – though it’s a position that’s not directly tied to her studies.

The 28-year-old makes a slightly better income than before she graduated, though there are many times when she feels like she is just barely getting by.

“It’s paycheck to paycheck,” Mitchell said, later saying that her estimated monthly payments right now are $820. “It's pretty close to like my two-week paycheck, so with rent – that's about $1,500 right now – and you add a car payment onto that, and then you add $800 on to that. And I'm spending more than I'm making a month at that point.”

Mary Jo Terry is a financial expert with Yrefy, private student loan company that helps people get out default. She said students have several options, and procrastinating should not be one of them. She offers these tips:

Look at your student loan information via StudentAid.gov.

“The whole point of this is to make sure your contact information is up to date,” Terry said. “Because what we don't want you to do is miss some information that one alone could be forgiven, there may be some important information that you may need.”

Update your information

“We don't want you to miss some information that a loan could be forgiven,” she said. “There may be some important information that you may need, so please update your name, your address, your email, your phone number, a lot of these things have changed.”

Identify your loan servicer, remaining balance, monthly payment and interest rate

“The treasury bill has gone up, so interest rates have increased,” she said. “Also make sure you understand what your payment is.  That's really, really important.”

Enroll in auto-debit

Doing so through your loan servicer will give you a 0.25 percent interest rate deduction and shave some months off your repayment term.

“It's been a significant period of time, coming up on three years, where payments haven't been made – and what we don't want to do is have money taken directly out of your bank account,” Terry said.

Explore your payment options and consider consolidating multiple loans

In the Standard Repayment Plan, you pay a fixed-amount each month and is designed to ensure you pay off your loans within ten years. This option has the least amount of interest.

A Graduated Repayment Plan begins with a lower monthly repayment, but gradually increases every two years. This also ensures your debt is paid within ten years but does carry a greater interest rate then the Standard Repayment Plan.

The Extended Repayment Plan may be either fixed or graduated. It ensures that loans are paid off within 25 years, though you will pay more over time than you would with the Standard Plan.

There are multiple income-driven repayment options: Revised Pay As You Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE), Income-Based Repayment Plan (IBR), Income-Contingent Repayment Plan (ICR), Income-Sensitive Repayment Plan.

“You can do all of these calculations on StudentAid.gov or call your loan servicer,” Terry said. “What we're talking about is 10 or 15 minutes, you can do it at any hour of the day. I know we all have extremely busy lives. But if these pieces are extremely important, that way we can get you into repayment program that will fit for you.”

Consider paying more than your regular monthly payments when you can

“There are no prepayment penalties on your student loans,” Terry said. “Keep in mind that if you can send an extra $25, skip your favorite coffee shop or fast-food, or maybe you find change… That's going to come directly off the principal balance of your loan, you're going to pay less interest, and you're going to have the ability to maybe shorten your loan term. Twenty-five dollars doesn't seem like a lot of money, but on the life of the loan, it is a significant amount of money as you go through.”

Avoid going into default at all costs

“Your loan servicers are there to walk you through, StudentAid.gov is there to walk you through all of these pieces,” she said. “I know we're all extremely busy, but take a few minutes and look at what your options are – default is not a good option – delinquency is not a good option.

“What ends up happening is everything in your life will become more expensive. If you default on your student loans, things as simple as your car insurance. And the cost of that will go up because it affects your credit score, your housing prices will go up it because it affects your credit score. We want to see you get this resolved and paid off.”

While President Biden’s Loan Forgiveness plan is still uncertain, your loans must remain in good standing to be eligible for relief.

Due to temporary restraining orders filed against the Biden Administration, Student Loan Debt Relief is currently blocked. Those interested can subscribe for updates from the Department of Education at this page.

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