The student loan industry has seen better days.
In the past few months, many service providers – companies that sign contracts with the federal government for billing, customer service, etc. – have left the loan service business.
Here is a brief breakdown:
- In July, FedLoan said it had no plans to renew its contract with the government, which will end in December. More than 8 million borrowers will be affected and move to a new service provider.
- Granite State Management & Resources serves 1.3 million borrowers and will not renew its contract with the Department of Education at the end of 2021.
- And in September, Navient – one of the largest service providers in the country – will transfer its 6 million student loan accounts to another service provider, Maximus.
Richard Cordray, COO of Federal Student Aid, recently delivered a keynote address to the Education Finance Council. His comments were given to Politico.
He said in the speech that part of the renegotiation with the loan service providers will be new performance and accountability metrics. According to Cordray, that wasn’t a good fit for some servicemen, so they broke up.
“Some service providers have chosen to leave the program instead of dealing with these new realities. Others have grasped the spirit of our intentions and adopted a new normal of putting borrowers first. “
What does this mean for borrowers?
The payment pause that began in March 2020, the so-called forbearance for student loans, ends on January 31, 2022. This means that 43 million borrowers should pay their loans again at the beginning of next year.
In theory, they will only make payments to a new loan service provider. Not a big deal, is it? The problem, however, is the short transition period. The timing is not ideal.
Cordray said the payment hiatus was “an unprecedented challenge” given the complications of resuming tens of millions of payments concurrently. He said the political debate over student loan issuance did not help with borrower expectations.
“We can expect that many, many borrowers will be unwilling to come back to repay if they believe, or even hope, that it would never happen,” he said. “Climbing this psychological hurdle with millions of Americans can be a much more difficult task than we know.”
How to approach student loan repayment
Here are some measures we suggest to help you repay your loans.
1. Build an emergency fund.
“I have to pay something off and you tell me to save?”
A $ 1,000 Rainy Days Fund will help you pay cash for those daily emergencies that could really slow down your loan payouts. When it comes to student loans and their related interest, $ 50 is all important.
2. Determine your eligibility for income-based repayment plans.
Federal student loans have a standard 10 year amortization schedule.
If you are struggling to make these payments, there are several payment plan options available to you, including an Income-Based Repayment Plan, Income-Based Repayment Plan, Performance-Based Plan, and a Revised Performance-Based Compensation Plan.
3. Lower your interest rates.
It always helps to lower the percentage you pay in interest, no matter how small the decrease. Federal loans usually have lower interest rates than private loans, but you can still lower those interest rates.
Many websites allow you to compare company rates to refinance your loan, provided you have stable income and good credit. Some service providers also reduce your interest rates by 0.25% if you set up an automatic payment.
When you have a personal loan, it never hurts to call your service provider, explain your situation, and ask for a new, lower interest rate.
4. Choose a debt settlement method
Sometimes a simple, concrete plan can help with motivation. You can see exactly what your payment future looks like and you know exactly what to do to get out of debt.
The debt avalanche is one such plan. You start out on your loan with the highest interest rate and then focus on putting as much additional payments / cash in hand on that loan. Once it’s paid, switch to the next higher interest loan. The avalanche continues until you are out of debt.
Another plan is the debt snowball method. With this plan, you start with the lowest credit balance first. Wager on to cash it out, then move on to the next lower balance. So and so on and you are finally debt free.
5. Make sure you have a budget.
A zero-based budget is created to quickly pay off debts.
Every month you list and prioritize your expenses. Using your income as a starting point, you “spend” all of your money on those expenses until you reach zero.
With a zero-based budget, as opposed to percentage budgeting, you have control over how much you spend on debt each month. When attacking this student loan debt, you can change the percentages based on your other monthly expenses.
One month you can use a quarter of your monthly income and the next month you can go wild and use half. It’s up to you. You can also use the remaining money to pay for these debts.
6. Find a side gig.
The Best Way to Pay Off Debt? To earn more money!
Whether it’s tutoring, freelancing, doing odd jobs, ESL lessons, online transcription, and even hiring your friendship, there are tons of ways to make some extra cash. In fact, we have 50 unique ideas to get you started.
7. Cut spending.
Yeah, it’s not fun. But if you really want to get out of student loan debt, and you want to do it faster, some other things must go.
The exodus of student loan service providers is just one of many that has plagued the student loan industry in recent years. Our best advice? Do everything possible to get out of student loan debt as soon as possible and eliminate these lingering financial headaches from your life.
Robert Bruce is a senior writer for The Penny Hoarder.