For many, managing student loan debt has been a struggle since October 2023 when the federal repayment program restarted after a more than three-year hiatus. Ashley Weeks, Wealth Strategist at TD Wealth, has some practical tips on how to help handle this major budget expense.
Review your budget
When you have a new expense, an important first step is to look at what money is coming in and what's going out. As you go through your budget, categorize each item. Expenses are either fixed or variable.
Fixed expenses include money spent on rent or a mortgage, groceries, utilities and should also include student loan repayments. There usually isn’t much that can be done to cut back on the cost of these fixed items, at least not in the short term.
Variable costs include entertainment, subscriptions, vacations and eating out. List your variable expenses in order of priority and cut back where you can.
Do your best to keep an emergency fund. Three months of expenses should be set aside at a minimum, but six months is ideal.
Keep your credit score consistent
Your credit score impacts everything from employment verifications to insurance quotes to applications for rental homes. There are a lot of factors that go into credit reporting such as how timely you’ve made loan or credit card payments in the past, the amounts that are currently owed, and the length of your credit history. The most important goal is to make your payments on time, even if it’s the minimum due.
It may be tempting to make major changes to your credit, but when you add a new expense, keeping your loan and credit card payments consistent may be the safest way to go. However, if you are someone who struggles with credit card debt or has difficulty being responsible with your credit, you might be better off getting rid of a credit card or two. In the long term, canceling that type of consumer debt is probably only going to have a negligible effect on your credit score.
Take advantage of repayment programs
There are several programs available for holders of federal student debt. The SAVE repayment plan will adjust your payments based on income and family size. The lower your income, or the larger your family size, the less you’ll pay each month.
If you have more than one student loan, you can potentially consolidate those expenses into one payment. By combining multiple loans into a Direct Consolidation Loan you may be eligible for a fixed interest rate and a longer payback period.
The Federal Student Aid office also allows you to calculate repayment strategies with an online simulator. A tool that can help you figure out your next steps.
Keep in mind that, in the past, individuals with federal loans may have moved loans to a private lender to get a reduced interest rate. Typically, private lenders are not able to beat what the federal government charges for student loans. Also, be aware that, if you do use a private lender, you may lose access to federal programs that allow for income-based repayment.
Learn about government forgiveness
Through September 30, 2024, credit reports will not be impacted by late student loan payments. Instead, missed payments will be added onto the end of the loan term, helping borrowers protect their credit scores.
If you are a teacher, a government employee, work for a non-profit, are a nurse or doctor or have a disability, you may qualify for partial or full forgiveness of your student loans.
Be aware of employee benefits
According to the Secure 2.0 Act (section 110), starting in 2024, employers will have the option of treating student loan payments made by their employees as if those payments were contributions to their retirement plan for the purposes of crediting an employer match. This is a benefit that allows people to get funds into a workplace retirement account and pay down student debt simultaneously.
However you manage your student loan debt, be aware that you will not be asked to pay for assistance from the government to help you manage your loans and, never give out personal information or passwords. Report any potential fraud to the government.
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We hope you found this helpful. This article is for informational purposes only and is based on information available as of January 2024 and is subject to change. Any references to third party programs and/or services are informational and may not apply in your specific circumstances. This content is not intended to provide legal, tax, investment, or financial advice or to indicate that a TD Bank, TD Bank affiliate, or third-party product or service is available or right for you.
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