How to Cope with Student Loan Repayment

After a three-year pause in student loan repayments, millions of Americans face the financial challenge of having to resume payments on their student debt. For many, it will mean a spending crunch at a time when inflation has already made meeting expenses a monthly predicament. But if you plan carefully, make a budget, and reduce discretionary spending where you can, you’ll be able to pay what’s owed with a minimum of pain.

The repayments were suspended by the federal government because of the pandemic, giving most borrowers an extended breather. The Biden administration proposed a plan to forgive up to $20,000 in student debt, but the U.S. Supreme Court ruled in June that the forgiveness plan could not go forward. As a result, the moratorium ended in August 2023 and loan payments resume in October 2023.

Research from credit agency TransUnion found that about half of the nearly 27 million borrowers will owe more than $200 per month, with about one in five owing $500 or more per month. If you need to add this monthly obligation back to your expenses, here are some steps you can take to create a new budget and ensure you have enough put aside.

Update Your Information

If you haven’t logged into your studentaid.gov account lately, that’s your first step. You’ll want to make sure your account has up-to-date information about you, including contact information if you’ve moved or changed your phone number in the past few years. Once you’ve logged in, you’ll be able to see the balance on your loans and other information such as your interest rate and your current payment program.

You may want to set up automatic payments for at least your minimum monthly payments. Not only can you get a quarter-point rate cut for automating your payments, but you’ll also ensure that you never have to worry about sending in a payment late or missing one entirely.

Once you know how much you’ll have to start paying, you can draft a budget to accommodate the required payments. Look at your credit card statements or use a budgeting app like Fifth Third Momentum^® to track your spending over the course of a few weeks to help formulate a plan. Check out the Monthly Budget Calculator from Fifth Third Bank to get finances and general expenses in order.

There are also tools available that can help you stay on track. Fifth Third offers Smart Savings from the bank’s mobile app that can automatically move money from your checking account into a saving account, such as Fifth Third Momentum^® Savings, without having to do the work every month.

Understand Student Loan Repayment Options

The federal government offers three repayment options for borrowers, each with its advantages and disadvantages.

1. Standard repayment. This plan requires fixed monthly payments over a set period of time.

Pros

• In most cases, you will typically pay the least amount of interest over the course of your loans.
• You could get out of debt within 10 years.
• The amount you pay does not change, making it easy to plan.

Cons

• Your payments may be higher than they would be under other types of programs.
• If your income goes down, your payments will not (unless you switch to another payment plan).
  

2. Graduated repayment. This plan starts out with a lower monthly payment, but the amount you pay increases over time. This plan may make the most sense for borrowers who have a low income now but expect to earn more money over time.

Pros

• Your initial payments may be lower than they would be under the standard repayment plan.
• You could get out of debt in 10 years.

Cons

• You may pay more in total than you would with a standard repayment plan.
• If your income goes down, your payments will not (unless you switch to another payment plan).

3. Income-driven repayment. There are several types of income-driven repayment plans, all of which peg your monthly payments to a percentage of your monthly income. If you reach the end of that term and still have a remaining balance, it may be forgiven.

Pros

• Since your payments are tied to your income, they should be more manageable for a tight budget (if you are unemployed or have an extremely low income, your required payments could be $0).
• A portion of your loans could be forgiven.

Cons

• You’ll need to fill out forms every year certifying your income and family size.
• You may end up paying more in interest than you would under other plans.
• You could have loans much longer than you would under other plans.

If you’re not sure which plan makes the most sense for you, the loan simulator tool at studentaid.gov can help.

Another option may be to refinance your loans, but it’s important to know that private student loans have variable rates that could go up over time (while federal loans have fixed rates). In addition, private loans do not always offer protections such as access to the above repayment plans or federal deferment or forbearance programs if you hit hard times.

See If Your Employer Can Help

An increasing number of companies have begun introducing student loan repayment assistance as part of their workplace benefits program. Last year, 44% of employers offered 401(k) contributions tied to student loan debt repayment, according to the Employee Benefit Research Institute, and more than a quarter provided loan repayment subsidies. Changing regulations and the reinstatement of student loan repayments means that even more employers will likely be looking at such benefits going forward.

Restarting student loan payments could have a significant impact on your budget. Planning ahead and looking into your options for repayment programs can ensure that you’re prepared for the change.

Can Banks Help with Student Loans?

If you would like help formulating a budget or discussing your financial alternatives, please visit a Fifth Third bank branch and ask to speak with a banker.