We're approaching a student loan cliff. Are you ready?

Here's what you can do to get ready for the end of the pause

Lisa Rabasca Roepe


Lisa Rabasca Roepe

Lisa Rabasca Roepe

Contributing Reporter

Lisa Rabasca Roepe is a contributing reporter at Policygenius, where she covers personal finance and insurance news. Her work has appeared in The New York Times, Fast Company, Wired, Business Insider, Quartz, The Atlantic's CityLab, and the Boston Globe.

Published May 2, 2022 | 3 min read

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When federal student loan relief ends later this year, the percentage of people who expect to miss loan payments is expected to return to pre-pandemic levels and could even increase, according to the Federal Reserve Bank of New York. 

Using data from the New York Fed’s May 2021 Survey of Consumer Expectations that included special questions about debt repayment, debt relief and expectations about missing a debt payment in the next three months, the Federal Reserve Bank of New York projected that borrowers currently benefiting from debt relief expect a 16% chance of loan delinquency if relief is discontinued. That is slightly above the pre-pandemic delinquency rate of 15.6%.

Since March 2020, the student debt payment pause, which also waived interest, and halted collections activity on defaulted loans, has helped 41 million borrowers save an estimated $5 billion per month. However, that relief will soon end because this relief  is expected to cease after Aug. 31, 2022.

“The policy did what it was supposed to do but it didn’t change anything structurally to system that would have change the outcome for borrowers in delinquency,” says Robert Farrington, founder of The College Investor.

Farrington noted that a similar share of borrowers — about 10% to 15% — are in constant delinquency, a sign that the same people who struggled with student debt before the pandemic could struggle after. “If you get into this cycle, it’s hard to break and it’s expensive because of collection costs,” he adds.

Worried about paying back your student loan? Here’s what you can do now to get ready.

Determine your minimum payment

Most borrowers don’t know what their minimum payment will be when forgiveness ends and they might not even know who their loan servicer is, Farrington says. You can find your loan servicer by requesting a free credit report or contacting the Federal Student Aid Information Center. Once you know how much you owe, you can make a budget or look at changing your loan repayment plan, Farrington says. It’s a good idea to update your contact information with your loan servicer to receive alerts and emails when forgiveness ends, he adds.

Start setting aside money now

Start preparing to pay your student loan by putting aside money for your minimum payment now, before you have to start paying in September, says Stephanie Genkin, certified financial planner and founder of Brooklyn, New York-based My Financial Planner. “See what it feels like to have to pay back your student loan with your other household expenses so you can start making adjustments now,” she says.

Make a lump sum payment before Aug. 31

When loan relief began in March 2020, Genkin encouraged her clients to continue making their payments, even though they weren’t required. Most people had extra money because they weren’t going on vacation or out to dinner, she says, and they were able to pay down the principal on their loan without having to pay any interest.

If you have extra money in savings consider making a one lump sum payment on your loan before Aug. 31, when the pause ends, Genkin says. This will allow you to pay down the principal without having to pay interest

Set up an Income Driven Repayment plan

If your minimum payment is high compared to your income, consider changing to an Income Driven Repayment (IDR) plan that sets your monthly payment to an affordable amount based on your income and family size. The best way to do this is to go to StudentAid.gov and apply for the program, Farrington says. “Your payment could legally be zero if you’re low income and you’d be still considered in repayment, not default,” Farrington says. In addition, an IDR plan could lead to loan forgiveness after 20 to 25 years, he says.

The Department of Education announced in April that at least 40,000 borrowers enrolled in the Public Service Loan Forgiveness Program for employees of the U.S. federal, state, local, or tribal governments or nonprofit organizations will have their debts forgiven, and 3.6 million borrowers pursuing income-driven repayment will be given at least three years of additional credit toward IDR forgiveness.

Image: Maskot / Getty Images