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For borrowers, the official federal student loan payment moratorium ends Sept. 1 after nearly two and a half years of loan payment hiatus.
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An extension, most likely through the end of this year, is expected to be announced by President Joe Biden before the end of the month. But whether that happens or not, borrowers will ultimately have no choice but to resume their payments, something many are not financially prepared to do.
A new study – commissioned by Keybank’s digital banking platform, Laurel Road and conducted by HarrisX – has assessed the financial implications for borrowers if the loan stay is not extended. The study found that having to repay student loans will have a significant impact on how affected borrowers spend and save their money.
According to the study, 17% of American adults currently have an outstanding student loan and 68% of adults who have a student loan have a federal government loan.
During the payment pause, more than two-fifths (43%) of respondents stopped repaying their loans completely and did not resume payments. This is almost double the figure representing borrowers who continued their loan repayments without a break (24%) and those who mostly continued their payments – but took a break (23%). Ten percent of respondents stopped payments but have since resumed their loan fees.
If the student loan stoppage doesn’t continue beyond August, 45% of respondents will have to cut other expenses and 31% will have to get loan forgiveness from the civil service, according to the study. . Additionally, 23% say they will have to refinance their loans and 22% will not be able to pay groceries or rent.
Repaying your student loans: expert advice
Kaitlin Walsh-Epstein, Director of Marketing at Road of laurelswho said, “Managing your student loans is not a one-size-fits-all approach.”
Correspondent with GOBankingRates, Walsh-Epstein suggested a thorough review of your finances as the first step in the repayment process, as well as a review of your debt and repayment schedule.
“For those new to making payments for the first time, you should reevaluate your budget to determine where you may need to cut other expenses in order to make monthly loan payments,” Walsh-Epstein said. “The 50/30/20 budget rule (needs/wants/savings) is one of the easiest budgeting strategies to follow.”
Also, most people have given little thought to how interest rates have behaved during the student loan payment break. Checking rates beforehand will allow borrowers to determine which repayment path will best suit their means and goals.
“Depending on the person, this route may mean paying more than the minimum each month to avoid additional interest charges over the life of their loan, making payments 2x per month rather than once to reduce the overall amount of interest ‘She’s paying, or refinancing to lower their interest rate,’ Walsh-Epstein said.
“If borrowers are looking to pay less each month, they can also consider extending the term of their loan through refinancing to potentially make smaller monthly payments for a longer period,” she added.
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Knowing the total cost and interest rate of your loan, potential refinancing options, and your personal financial situation are essential pending an official federal announcement on this.
If you’re unaware and worried, ask your lender which plan is right for you, or as Walsh-Epstein suggested, “Consult a student loan expert to better understand their loan options.” loan cancellation, refinancing, or potentially both.”
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