Student loans are back: What to know ahead of return of interest, payments
MILWAUKEE (CBS 58) -- There is a lot of confusion around the return of student loan debt and payments, and experts recommend you stay on top of your payments to keep your finances in order.
"Having that financial burden sucks," Fredonia resident Lauren Jennaro said. "Knowing that at 25, I am $50,000 in debt is pretty crazy."
Jennaro graduated from UW-Whitewater in 2020, and since then, she hasn't had to pay her federal loans. But now, she is preparing for the inevitable.
"I've been planning on it for a while because I know it's going to be a decent amount of my income," she said. "I'm trying to make sure I am tracking when I get paid, making sure that I have automatic payments set up, and that I always have enough in my account, but yeah, it's challenging."
Jennaro recently moved home with her parents as she plans her upcoming wedding and deals with her looming student loan debt.
"It is the most financially smart decision that we can make, so we're toughing it out for a bit," she said. "I just want to pay off my loans."
She is just one of the 44 million Americans bracing for other debt to be collected. The payments and loans were paused during the pandemic to help keep the economy afloat. This Friday, interest rates will begin accruing again, and in October, the payments will begin.
"It's been great for the last three years, not having to pay both of my loans, but yeah, I'm a little bit stressed."
A person with federal student loans is enrolled in a standard repayment plan, but there are alternatives. The Biden administration created the Saving on a Valuable Education, or SAVE plan, an income-driven repayment (IDR) plan.
"If you were in the revised 'Pay As You Are' plan, then you are automatically being shifted to the SAVE plan, and you're going to have a 10% payment based on your income. There is a deduction on your income for the actual calculation. Next year in July, for undergraduate loans, the payment calculation is turning into 5%," Financial planner and Student Loans Over 50 President Erik Kroll said.
"If you have a high loan balance, utilize those income-driven plans. They can give a lot of relief. One of the other great features of the SAVE plan is that if your payment doesn't cover all of the interest, then whatever amount wasn't covered gets wiped away. No interest grows on the loan."
According to Pew Research, around 30% of all federal student loan borrowers — over 9 million people — are enrolled in an IDR plan.
To see which option works well for your finances, experts suggest using a loan simulator on the Federal Student Aid website. That is also where you can apply for an IDR plan.