How to Prepare for Student Loans to Resume in September

Get ready to pay off your student loans again.

This is what financial experts say to borrowers with federal student loans who have suspended their payment obligations since March 2020 due to the pandemic and lockdown. While many borrowers are hoping the suspension will be extended beyond the currently expected end date of September 30th, many experts do not believe it is likely.

Hence, it is important for these borrowers to prepare before the scheduled repayments are due – by evaluating their budgets and payment options.

“It can calm the rest of the summer a bit,” said Ashley Norwood-Struppa, regional director for the Northeast of the AccessLex Center for Education and Financial Capability, a provider of on-campus and online resources. “I don’t want anyone to be caught off guard by this bill this fall.”

Here’s what you could do now.

• Know what you’ve borrowed. Many borrowers may not know how much they owe if they haven’t made these payments in over a year. Young graduates also need this information, as they have to start paying regularly after a six-month grace period. That will be in November or December for many.

Federal Student Aid’s website at studentaid.gov shows users how much they have borrowed and estimates their payments. With the same access data as for their Fafsa (free application for federal student aid), borrowers can view all data and know who their federal employee is.

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New graduates who also have personal loans should reach out to these lenders to determine how these payments are and what repayment options are available. Some lenders will slightly lower the interest rate for those who sign up for the automatic direct debit.

• Plan your repayment options. Federal loan borrowers can use the loan simulator available at studentaid.gov to gauge what their payments will be with various repayment options. Borrowers who are already enrolled in a repayment plan should also use the tool to double-check whether the plan is still best for their situation.

New graduates who are about to repay federal loans should think about their budget and repayment goals. Do you want to reduce your payments as much as possible or do you want to pay as little as possible overall, even though this strategy involves higher monthly payments?

If you intend to make payments under an income-based repayment program that aims to make payments affordable based on your income and family size, Ms. Norwood-Struppa recommends submitting the application in the month before your first payment is due. You can apply online at studentaid.gov and the process takes about 15 minutes.

Private loan borrowers must plan their repayment strategies based on the options of their individual lender or their lender.

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• Consider refinancing with a private lender. Many people have backed federal loans with high interest rates for several years. If they can afford it and have good credit, they should consider refinancing with a private lender at a lower rate so the loans can be repaid faster, says Wilson Coffman, president of the Coffman Retirement Group in Huntsville, Ala.

Borrowers in this situation should ask themselves a few questions first to assess their repayment ability – and to determine whether they are likely to need government loan protection that would likely be lost if refinancing with a private lender. These questions include: Is my job safe and is my salary likely to rise quickly so that I can easily repay my loans? How many credits do I have? What is my interest rate on these loans and could I get a significantly better interest rate from a private lender? And how long will it be before the loans are fully repaid? If there’s only a year or two left, refinancing probably doesn’t make sense, says Mr. Coffman.

Refinancing a federal loan with a private lender can have disadvantages. Most private lenders do not offer income-based repayment. You will also lose access to state perks like income-based lending, teacher forgiveness, or public sector lending if you qualify. Switching to a private lender could also leave you ineligible for a possible broad-based, government-sponsored loan waiver that has been widely talked about. “It has to make mathematical sense,” says Mr. Coffman.

You don’t have to refinance all of your federal loans. You might choose to only refinance one that has a much higher interest rate than you could get with a private lender. If you already have a private loan, you may also be able to refinance it with your current lender or another lender to benefit from lower interest rates.

In general, however, borrowers shouldn’t expect widespread government loan waiver. You need to plan as if forgiveness is not an option, experts say.

“If you have student loans, you still need to develop a repayment strategy,” says Ms. Norwood-Struppa. “In the event that forgiveness occurs, you can re-strategize at this point.”

Ms. Winokur Munk is a writer based in West Orange, NJ. She can be reached at report@wsj.com.

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