3 ways to reduce student loan debt before Biden's payment freeze ends
The end of the summer will mark the end of an epic holiday for roughly 42 million Americans.
After two-and-a-half years, payments are set to resume for federal student loan borrowers after August 31, 2022. In response to a question about "the student loan decision," President Biden recently told reporters he plans to make a decision "by the end of August," but whether Biden meant forgiveness or an extension to the freeze isn't clear.
Either way, his administration warned Americans that his first of two extensions would be the "last," so federal student loan borrowers would be wise to prepare for their payments to resume.
If your finances have held up pretty well throughout the pandemic, now's the time to take advantage of this last month of the moratorium to clear out as much of that debt as you can.
Here are three ways to help you reduce your student loan debt before payments restart.
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1. Make payments, even though you don't have to
While it might be tempting to remain "on break" from your student loans until September, continuing to make your regular payments — and even paying more than your usual minimum — is a smart idea, if you can afford it.
Since the interest rates on federal student loans are frozen at 0%, any payments you make now will go entirely toward the principal of your loan.
That means you might be able to take a decent chunk out of your loan balance. When student loan debt was frozen in 2020, the typical balance was between $20,000 and $24,999, according to Federal Reserve data.
Resuming your payments early is probably out of the question if you're dealing with other debts, like if you ran up your credit cards during a period of unemployment last year.
Biden's administration hasn't made any announcements about forgiving loans, but officials have said they're hoping to find other ways to ease the burden on student loan borrowers.
In the meantime, if you have credit card debt, you may want to use this time to tame it with the help of a lower-interest debt consolidation loan.
2. Seek a new repayment plan
You could clear out your student loan debt faster by switching up your current payment plan, particularly if your income got cut by the pandemic and still hasn't come back.
The government offers income-driven repayment plans that allow borrowers to make more affordable payments, based on what they earn. After you make 20 or 25 years of regular payments under an income-driven plan, your remaining debt will be forgiven.
That might be your best shot at having some of your student loans canceled. President Biden campaigned on wiping out $10,000 in student debt per borrower, and while leading Democrats pressed him to go to $50,000, he ruled out that possibility back in April.
One simple money-saving step with a federal student loan is to enroll in autopay because signing up for automatic deposits will qualify you for a 0.25% interest rate reduction when payments resume.
3. Refinance private loans
If your student loans are from a private lender and not the federal government, the payments pause doesn't apply to you.
But you can attack your student debt over the next few weeks by refinancing your loan because interest rates on refi student loans from private lenders are still at historically low levels.
Whether you qualify for refinancing will largely depend on your credit score and your current income. If you’re not sure about your score, it's easy today to check it for free online.
Even if you’ve lost your job due to the pandemic, you may be eligible for a refi if you can show investment income or income from a side gig, or find a co-signer to back your application.
To get the best rate to refinance a student loan, you'll need to shop around and compare quotes from multiple lenders. Experts recommend comparing at least three offers before settling on the right one for you.
Just remember that refinancing is not an option if you’ve got a federal student loan, and replacing a federal loan with a private one will make you ineligible for any further loan relief measures from the government.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
