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Student loan payments resume October 1 and could cause ‘extraordinary financial hardship’: How to prepare

"[Borrowers] risk being thrown into extraordinary financial hardship when their payments resume."

Senator Elizabeth Warren (D-MA), speaks to Charles P. Rettig, commissioner of the Internal Revenue Service, before he testifies during the Senate Finance Committee hearing titled The IRS Fiscal Year 2022 Budget, in Dirksen Senate Office Building in Washington, D.C., June 8, 2021.
Tom Williams | Pool | Reuters

Shortly after the onset of the coronavirus pandemic, lawmakers enacted student debt relief, setting federal student loan interest rates to 0% and pausing payments. Those protections are set to expire on October 1, 2021.

On Monday, Sens. Elizabeth Warren, D-MA, Tina Smith, D-MI, and Edward J. Markey, D-MA, sent letters to federal student loan servicers asking what steps they're taking to help borrowers transition back into paying. "Millions of borrowers have had relief from their student loan payments and interest for more than a year during the Covid-19 pandemic — but they now risk being thrown into extraordinary financial hardship when their payments resume," they wrote.

In the past, when the Department of Education implemented student loan forbearances, student loan delinquency often rose when payments resumed. Poor communication from servicers this fall could contribute to borrowers missing deadlines or defaulting. 

Paying off your student loans with Michael Torpey

Video by Ian Wolsten

Start setting aside part of your paycheck

Now is a good time to start preparing for payments to resume, experts say. For example, set aside part of your paycheck as if that loan payment is back in your budget to get accustomed to the change.

If the pandemic affected your finances, look into income-based repayment plan options.

These plans base payments on discretionary income, and some can drop payments as low as zero. "So, if their income has been reduced, they have the potential for their loan payment to be reduced as well," Matt Smartt, CFP, a wealth advisor with Henrickson Nauta Wealth Advisors in Belmont, Michigan, told Grow. "This is not the best long-term solution as it ultimately extends the payback term, but it can be a good solution in the short term if income is tight."

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