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What to expect if student loan repayment is unpaused?

Millenial looking over student loan repayment

Q&A: What to expect if student loan repayment is unpaused?

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The most difficult part.

The most difficult part for most people with student loans will be adjusting their budgets and lifestyle. Loans have been paused for such a long time at this point that folks have gotten comfortable with spending the extra money in some manner. Start thinking ahead of time about what you will need to cut back on spending or savings-wise to make payments.


I’m waiting for my student loans to be forgiven, when is that going to happen?

Americans are plagued with student loan debt and it can be argued it would be favorable or unfavorable for the economy if the debt is forgiven but one thing for certain is that it requires congress to act or could potentially be done by executive order which is questioned on legality bases.  As most people know the President recently announced relieving $10,000 for federal student loans.

We recommend not waiting and hoping for the government to make additional moves but to start repaying. Even if there is more loan forgiveness, there is a smaller probability that your whole loan will go away so before you start accruing interest again start tackling paying those student loans down.


Other ways you can get student loans forgiven?

There are different forgiveness programs out there. We won’t get too far into the weeds in this article on the topic, but this is what you need to know.

The Public Service Loan Forgiveness is a program that if you work for certain employers the government, schools, and non-profit organizations you may be eligible after 10 years of work to have your loans forgiven. Now keep in mind the program has its flaws, and you need to be on a particular repayment plan as well.

Repayment plans with loan forgiveness. If you get on certain repayment plans you automatically start to qualify for loan forgiveness, but it can take between 20 to 25 years of repayment. At that point what is left on the loan may not be much. You may be better off paying the loan sooner and saving a bunch on interest, freeing up cash flow to further do things like invest in a home or the stock market.

There are a few other options worth looking into like the Teacher Loan Forgiveness Program and Borrower Defense to Repayment. Get further details here.


Does increasing interest rates affect student loan repayment?

Interest rates won’t affect student debt repayment in most cases. Most student loans are federal loans and those loans are fixed interest. New borrowers of federal student loans will face increased interest rates, however.

If you took out loans from a private lender you may either have a fixed or variable loan. You will know you have a variable interest rate loan when you see the rates creeping up. And for those that have thought about refinancing federal student loans with a private lender you may find their rates have gone up and it is no longer advantageous.


If the economy goes into a recession, will that impact my student loans?

Experts are debating whether a recession is upon the US, and if the US economy does end up in a recession it shouldn’t change the situation much.

A recession triggered by unemployment would be of concern but in the current case with unemployment numbers doing great and last month beating out expectations it is a different story why GDP hasn’t grown recently.  Since people are retaining their jobs and have the flexibility to switch jobs for higher pay this should play into people being able to continue payment.

And note what happened when the pandemic hit, student loan repayment got paused. If the economy digressed further, it could be likely that the federal government would do something similar again to help out American citizens.


Related: Leading Economic Indicators

How does inflation impact student loan repayment?

Inflation erodes purchasing power, meaning things can get more expensive because the dollar doesn’t go as far with its worth. How this impacts student loans is that if people are having to spend more money on groceries and gas they will have less money to put towards loan repayment. And may feel squeezed more.

Now the contradiction to this is that while inflation has hit highs so has wage growth. This is pulled from the U.S. Bureau of Economic Analysis and illustrates the jump in wage growth. Wages increased 10.25% in June 2022 over the same month in 2021.  Which counteracts inflation to some extent. While people are paying more for goods and services they are also making more money. Hence, there shouldn’t be much of an impact on the ability to pay back student loans.

source: tradingeconomics.com

What should you do if student loans stay paused by another federal extension?

Start paying them. When the loans are paused this is a great time to continue paying them back.

Why? Because they aren’t accruing additional interest. You can really make a dent on your loans so that when interest starts accruing again you will have a reduced loan balance. Therefore, you will accrue less interest in the long run saving you a bunch of money. It will also impact you less when repayment starts again because you are already paying and have already worked out your budget.

The only time when you shouldn’t be tackling student loan repayment when loan repayment is paused is if you are using the additional money to deal with a crisis or putting the extra money into steeper interest-bearing loans like credit cards.


Related: First-time homebuyers: The Forgotten Costs of Buying

Where to go from here?

If you don’t have a good grasp on your financial situation, have further questions on student loans, or need help figuring out your budget then work with a professional for the help you need. We know we have helped countless individuals put themselves in a better financial position. Do you want to see if BlackBird Finance can help you navigate the world of finances? Then schedule an initial chat to see if we are the right fit.