Student loan payments have you worried? Financial advisers offer strategies for borrowers
With the clock ticking down to when federal student loan borrowers will be required to resume their monthly payments following a more than three-year pandemic pause, many Long Islanders still find themselves unprepared to take up this obligation again. They’re unsure how they’ll be able to afford these bills, and some are still confused about which payback programs could ease their burden.
The first resumed payments are due in October, but the exact due dates vary, and this year’s spring graduates do not have to make payments until the grace period expires — usually six months after completing their studies.
“I felt like a weight had been lifted off my shoulders, giving me temporary freedom from a looming financial obligation,” Tyler Ramirez, 23, of West Babylon, said of the break from payments. He recently started his own personal training business and also teaches fitness classes at Hofstra University.
Ramirez, who lives with his parents because he said there is no way he can afford his own place, has loans totaling $15,222, while his annual salary from both jobs is about $19,000.
Tyler Ramirez, 24, of West Babylon, said he was grateful for the pandemic pause from loan payments. Credit: Debbie Egan-Chin
I felt like a weight had been lifted off my shoulders, giving me temporary freedom from a looming financial obligation.
— Tyler Ramirez
“All of this compounds the financial pressures I’m facing,” Ramirez said of the student loan payments beginning again. “With my current financial struggles ... adding another monthly payment creates a significant burden. It’s a stressful aspect that constantly hangs over my head.”
The reprieve, which went into effect in March 2020 and froze the accounts of nearly 44 million borrowers, ends next month following several extensions during both the Trump and Biden administrations. Congress stopped President Joe Biden's bid for another extension, and the Supreme Court in June struck down a student loan forgiveness plan proposed by Biden.
Interest rates, which are fixed and vary by loan, had effectively been set at 0% since the pause started, but on Sept. 1 they began accruing again at the pre-freeze rate. Monthly payments could change, however, for borrowers who made optional payments or other changes such as consolidating their loans or who are participating in income-driven repayment (IDR) plans .
The choices can be confusing.
IDR plans with the U.S. Department of Education include the popular Pay As You Earn (PAYE) and Biden's new IDR plan, Saving on a Valuable Education (SAVE), with SAVE replacing Revised Pay As You Earn (REPAYE).
Borrowers who have made no changes to their loans are automatically enrolled in a standard 10-year repayment plan and they can expect to be enrolled in the same plan they had before the pause, though they can enroll in income-driven plans that could decrease their payments.
Those enrolled in REPAYE have automatically been switched to SAVE. As of Sept. 12, 4 million borrowers had enrolled in SAVE and another million had applied, according to figures provided by U.S. Education Department officials. The plan caps accruing interest for eligible borrowers who stay on top of their payments and largely decreases monthly payments. Borrowers making less than $15 an hour would not have to make any payments at all.
The main difference between PAYE and SAVE is the length of repayment. PAYE is for 20 years for both undergraduate and graduate loans; after you make payments for 20 years, any remaining balance is forgiven (and taxed as income). SAVE is for 20 years for undergraduate loans and 25 years if any of your loans are from graduate school.
Through September 2024, the government has instituted an “on-ramp period" during which there won’t be the usual consequences, such as reports to credit bureaus, for missing a payment.
Leah Jackson, 29, of Rocky Point already works two jobs to make ends meet and will soon face the start of repayments on $260,000 in student loans. Credit: Debbie Egan-Chin
I am terrified for payments to go into effect.
—Leah Jackson
Lisa Hollander, 60, of Medford paid off her undergraduate loans but now owes $255,000 in loans for her MBA and college for one of her sons. Credit: Newsday/John Paraskevas
I should be thinking about retirement but instead I am losing sleep over this crippling debt.
— Lisa Hollander
Advice from the professionals
Leslie H. Tayne, credit and debt expert and founder and head attorney of Tayne Law Group, P.C., in Melville, and Nicholas Prewett, director of the Office of Financial Aid and Scholarship Services for Stony Brook University, offered advice for borrowers. Credit: Tayne Law Group, P.C., Nicholas Prewett
- Nicholas Prewett, director of financial aid for Stony Brook University
- Leslie H. Tayne, a credit and debt expert who is founder and head attorney at Tayne Law Group P.C. in Melville
Credit: Debbie Egan-Chin
TYLER RAMIREZ, 23, of West Babylon, personal trainer and fitness instructor
Annual income: $19,000
Student loan debt: $15,222
Monthly loan payment: $152
Monthly rent/family expenses: $550
Other monthly bills: $1,000
Credit: Debbie Egan-Chin
Credit: Debbie Egan-Chin
LEAH JACKSON, 29, of Rocky Point, lawyer and hotel front desk agent
Annual income: $85,000
Student loan debt: $258,355.80
Monthly loan payment: $2,933
Monthly rent: $1,700
Other monthly bills: $800
Credit: Debbie Egan-Chin
Credit: Danielle Silverman
YADIEL CORPORAN, 24, of Medford, sports entertainment account representative
Annual income: $52,000
Federal student loan debt: $10,000
Private student loan debt: $41,750
Monthly loan payments: $300
Monthly bills: $825
Credit: Danielle Silverman
Credit: Newsday/John Paraskevas
LISA HOLLANDER, 60, of Medford, payroll manager
Annual income: $104,000
Student loan debt: $255,000
Monthly student loan payment: $1,340
Other loan/credit card payments: $3,540
Her share of other monthly bills: $1,760
Credit: Newsday/John Paraskevas
Tips for paying off loans, saving on expenses
Susan Quigley, owner of Squigley Financial in Garden City, offered these tips:
- Pay loans with the highest interest rates first. Most people have a variety of loans at different rates. For convenience, many either pay the minimum or they take whatever they’re planning on paying and spread it evenly across different loans. The smarter way, and quicker way to reduce your debt, is to make a list of your balances, minimum payments and interest rates. Pay the minimum on all your loans except for the one with the highest interest rate – concentrate on paying that one down first.
- Make extra payments on your loan. Even small extra payments can make a difference over time. If you get paid every two weeks, why not use half of the money you get from those wonderful months where you get a third paycheck to make an extra loan payment?
- Cut down on unnecessary expenses. For example, choose the LIRR instead of Uber rides, and make your meals yourself at home. When ordering out, using the services that deliver can add $5 to $10 in fees to the cost of the meal.
- Reduce restaurant bills. When eating out, share an appetizer or dessert – it’s good for the wallet and the waist. Remember $20 saved in a restaurant is really $25 after tax and tip.
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