How to plan a financial future amidst uncertainty about student loans

Throughout the pandemic, federal student loan payments and interest rates have been put on hold to help provide financial relief to borrowers as they try to cope with the hardships caused by COVID-19. After several extensions, the planned end of the suspension of the federal student loan payment is August 31, 2022.

In addition, many citizens are waiting for President Biden to fulfill his campaign promise to forgive as much as $ 10,000 in federal student loans for each borrower. To date, no bill in Congress has addressed the forgiveness of student loans, and Biden has not made an executive order on the forgiveness of student loans. The uncertainty surrounding student loans persists while the issue continues to be discussed in Washington.

If you are unsure of how to plan your finances amidst the uncertainty surrounding student loan repayment, here are some tips to help you manage your money and goals.

Decide what you want to achieve

What is it that you want to do financially in the long run?

  • buy a house?
  • Raising a family?
  • Retire before age 60?

Although it may take several years for your student loans to be repaid, this does not mean that you can not start taking steps towards your other financial goals.

Sometimes just knowing what you are working towards will make the goal feel more tangible and therefore achievable.

Plan your budget

Whatever the situation, one of the best things a person can do is make a budget and plan how they will spend their money.

When you budget, you give every dollar a purpose, and it will help you be more efficient in how it is spent. Budgeting also sheds light on the reality of your financial situation. The more successful you are at planning, the better you will be at staying within your budget.

Put down your second debt

If you have other debts besides student loans, lowering them will be crucial to your success. Getting rid of expenses like your credit card payments or a car loan will give you more monthly cash flows to add to your student loans each month.

A good strategy to achieve this is something called the debt snowball. This is where you focus on paying off the debt with the smallest balance first. Once eliminated, you can redirect these payments to the debt with the second highest balance and pay it off. Before long, your debt will be systematically written off one by one.

Consider changing your payments

There are two important ways to change your monthly student loan payment: refinancing your loans or moving to an income-driven repayment for federal loans.

For those who are determined to tackle their student loan debt quickly, refinancing student loans could be a great option. A refinancing student loan can allow you to create new repayment terms. This allows you to either shorten the term of your loan, reduce your monthly payment or potentially do both at the same time. Refinancing options can give you the flexibility to get out of debt faster.

On the other hand, if you are struggling to make payments and you have federal loans, you can apply for an income-driven repayment plan (IDR). This is where your loan gets restructured in relation to what you can pay in relation to what you owe, which generally results in a lower payment spread over the longer term. Specific program requirements will vary depending on which federal repayment plan you choose.

To see if you qualify, check out the U.S. Department of Education website.

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