October 1 is fast-approaching, which means student loan payments are making a comeback.
Interest already began accruing last month for the nation's 43 million borrowers, including the more than 900,000 here in Massachusetts, which holds the 14th-highest number of borrowers in the country. Student loan expert Andy Manthei, an associate business development representative at the nonprofit GreenPath Financial Wellness, joined GBH’s Morning Edition co-host Paris Alston to talk through some of the things borrowers should consider.
"You have options," he said. "So many options."
How should people prepare to start repaying their loans again?
In the early days of pandemic lockdowns, the federal government suspended interest accrual on students loans. That means that some borrowers stopped paying them altogether, putting money either into basic costs of living — housing, food, health care and other increasingly expensive necessities — or used the money to pay off some of the principal on their loans without having to worry about the interest.
“What we have seen is that some of those payments have gone towards other necessities with inflation, and so we've seen credit card debt rise as well,” he said.
Interest began accruing again last month, and payments are due Sunday, Oct. 1. How people fit those payments into their budgets depends on how much they owe, their other expenses and their incomes.
“When we start to really dig into what the data shows us, it says one in four are expected to have a $500 payment or more,” Manthei said. “People have to understand that they are not alone and that it's going to be okay, that we can start to look at some of these other areas and determine how the cash flow can accommodate these payments and the different programs that are available for them.”
The first step, Manthei said, is to evaluate your finances. Where is your money coming from? And where is it going?
“And now what we have to figure out is, where are we going to get this money?” he said. “Whether that's looking at options for improving their cash flow through any kind of income, so maybe side gigs, things like that, or we've got to take a look at what payment options are available.”
The key thing for borrowers to remember is that they do have options. One of them is called the Saving on a Valuable Education, or SAVE Plan, a federal income-based repayment program that allows borrowers to pay less if they make less.
“When we look at what the average payment on an income-driven repayment plan — being around $140 to $150. And then on the SAVE Plan, depending on income, that may drop as low as in the forties,” he said. “And there's a lot of folks that will not even have to pay anything. But you have to talk to your servicer.”
What do I need to know about talking to my loan providers?
It may be chaotic, time-consuming and frustrating.
But ultimately, if you qualify for an income-based repayment program or a loan forgiveness program, the amount due on your student loan statement may not be the amount you actually have to pay.
“You've got to know through all of the chaos of changing over servicers, as some of the servicers exited the game and new ones came in, you have to know who is managing those,” Manthei said. “Usually when you receive your bill, that is going to be a standard repayment plan. But that is not what you have to pay if you contact them and talk through, this is what my discretionary income is based on the tax returns and things like that, what you can actually do then is figure out which plan makes the most sense.”
He recommended speaking with a free student loan counselor through an organization like GreenPath (but beware of scammers targeting student loan borrowers.)
“Right now on our website we have a tool called PayItOff that actually walks through it and shows you the different options that are available, and you can choose those and begin the enrollment process as well,” Manthei said. “There's definitely a lot that people can do to be proactive here.”
Should I be trying to put extra money into the principal on my loans? Or should I just pay what’s due and nothing more?
Paying more than the amount due on any given month can help people pay off their loans sooner than expected, but it’s not the right choice for everyone, Manthei said.
“There are people that are prepared to pay their full standard payment and they want to be able to accelerate that because they don't want it to impact any abilities for investment, for retirement, for buying a home, things like that,” Manthei said. “But for people that are really cash-strapped, so that you are not relying on credit cards, you want to look at these options.”
Some questions to ask before putting extra money into the principal: What are the interest rates on the loans? Are the loans federally-backed or private? How stable is your income? And how high are your other expenses?
“When you look at all of those types of data points, what you really want to determine is: Can I actually afford this?” Manthei said. “So many workers now are in gig work, where they're doing part time work or things that are contract related, that may end up in the next six months, that maybe they're going to have to look at alternative work. And if you're in those types of situations, keeping that minimum payment lower is key because then you can add additional payments to principal.”
People who do want to add extra money to their payments don’t have to do so every month, he said.
“If you get some kind of money towards a tax return or things like that, that you could apply towards the debt,” he said.
What should I do if I can't make a payment on Oct. 1? Will it hurt my credit score?
Communicate with your loan provider, Manthei said.
“The great thing about what has happened in the administration right now is that they have an on-ramp repayment program that does allow enrolled borrowers to shield them from default or credit score implications,” he said. “We aren't going to advise people who are able to make payments to forgo the bills, but that could be a safety net. And so you could avoid any credit ramifications while you're working on this cash flow situation to figure that out.”