Six months after college graduates walk the stage, they must start paying for their education.
Several college students across the United States take out multiple federal loans to cover the cost of studying at a higher education institution. When they finish those studies, many of them must pay back the loans on their own with no help from parents or family members.
Having to spend thousands of dollars on college often puts students in debt at a young age. Roland Kljunich, President and CEO of Roland Financial Wealth Management, LLC says the quicker you pay them off, the better your financial status will be later in life.
“If they’re waiting until they get into their 30s and 40s and they still haven’t paid these loans off, they’re kind of always behind. You can’t really move forward in life when you have that kind of debt holding you down. So, whatever you can do to pay that off as quickly as possible is going to be the most incredible thig you can do for yourself especially in your early 20s,” says Kljunich.
Making those monthly payments became a bigger challenge this year for many borrowers because of the ongoing pandemic.
With the surge of COVID-19 cases causing shutdowns, student loan borrowers received a break. Based on the financial hardships many people faced from the pandemic, the office of Federal Student Aid was instructed by the Secretary of Education to provide relief to borrowers in March.
“We went into this opportunity that they could either defer payments altogether and not have interest, or they could ‘ve kept making payments but it would go to their principal and they weren’t going to collect additional interest,” says Brittany Taylor, Principal Financial Supervisor at HBKS Wealth Advisors.
The Office of Federal Aid suspended payments, stopped collection, and set interest to 0% for 60 days.
Shortly after, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was then passed by Congress and signed into law extending relief to September 30th, 2020.
With the effects of the pandemic still causing hardship for many, President Trump directed the Secretary of State to extend the relief until December 31st, 2020.
Graduates took advantage of the break period, and it served to their benefit. Trey Williams, a 2019 Penn State graduate said “Having the extra six months to start paying off was awesome. I got a lot of extra money from investing.”
The relief period eased payments for Jeremy Stonesifer as well a 2017 Penn State graduate. “I was able to pay directly onto the principal. I didn’t have to pay any interest or anything, so it helped get the main loans down,” says Stonesifer.
Even after using this lengthy period to be financially responsible, graduates think an extension past December 31st would be beneficial because of the lasting financial effects of COVID.
“If we’re going into a second wave, it probably should be extended because of those who still don’t have jobs from the previous wave of COVID. it’s probably going to be even harder to find jobs shortly if states go back on lockdown again. So, I think it would still be helpful if they extend it just a little bit more,” says Stonesifer.
However, if it’s not extended some college graduates are prepared with a plan to take on that debt.
“In the middle of December, I’ll probably be making a hefty payment and withdrawing from the stock market that I’ve already invested, and using that money to start paying off the student loans,” says Williams.
Other students will need to quickly plan and figure out how they’ll get back to monthly payments again especially if they stopped payments. One of the best ways to do it is through budgeting.
“If you haven’t been setting the money aside, then just make sure it’s in your budget starting for December 1st because it goes back into effect January 1st unless something changes,” advises Kljunich.
When looking at budgeting your loans back into your monthly payments, there’s certain categories to look at.
“There’s basically expenses that are like your loans that you are required to pay. Whether its rent or utilities those are expenses that you’re required to pay. They help build your credit. Then there’s those discretionary expenses, and everybody’s are different. So those are the areas that they really want to look at and decide ‘am I sending too much on these particular things? A lot of times it’s eye opening to see what you do spend,” says Taylor.
Taylor also says using technology can help you start and monitor your budget.
“Sometimes people do their budget, and they don’t look at it. For a lot of the young people there’s a ton of different apps out there that they can use that are free that will basically download your transactions, you can set what your budget is, and it’ll tell you where you stand every day relative to that budget,” says Taylor.
If money is just too tight, you can investigate other options:
FORGIVENESS: Roland mentions some possibilities to get your loans forgiven is through being employed by the state or a federal agency, working in a school, and working with some non-profits.
INCOME BASED: Taylor suggests calling the lender directly and see what options they have for you. You could possibly be set up for income-based payment plans, or forbearance.
CONSOLIDATION: Taylor says if you find an institution with a lower rate, that could potentially reduce your payment and you could potentially pay off some of the loans quicker.
UPDATE: December 4, 2020 – Secretary of Education Betsy DeVos extends student loan relief through January 31, 2021.