Key Takeaways
The three-year pause on student loan repayment ends in August. Beware of scams.
The average borrower takes 20 years to repay their student loan debt. Many budgets need to be adjusted, but you have more options than you think.
Here are six key steps to take so you’re not caught off guard.
If you have children or grandchildren with large student loans for grad school or even undergrad, they should be prepared to start repaying those loans again when the three-year pause on repayment ends on September 1st. As I mentioned in an earlier post, more people than you think have been eligible for student loan forgiveness since the pandemic started. There’s going to be a period of financial adjustment for many. According to the Education Data Initiative, the average monthly student loan payment is an estimated $503 per month ($720 for Master’s degree candidates and $900+ for doctoral and professional degrees). The average borrower takes 20 years to repay their student loan debt. This is likely to cause some disruption to many young people’s budgets. Don’t wait until the last minute.
6 Key Steps To Take:
1. Track down where your loans are held. Many loan servicers have changed hands or been acquired, so you may not be making payments the same way. This happened to me personally.
2. Figure out your new payment amounts and talk to your loan servicer about payment plans. See my earlier post about Smart Ways to Pay Off Student Loan Debt. 3. Be aware of new payment options or adjustments. NOTE: The most common payment plan – income-driven – has lowered the threshold to 10% of the borrower’s paycheck from 15% But your income is likely higher after three more years in the workforce.
4. If relevant, let your loan servicer know about extenuating circumstances such as job loss or having to leave the workforce due to extended illness, disability, or caring for a relative. 5. Set up your auto payments. Don’t assume those payments will resume automatically with your new loan servicer. You will likely have to go on their portal and re-establish credentials and preferences to set up auto payments from your bank account. 
6. Be aware of scams! “Pandemic grant” or “Biden loan forgiveness” are red flags. We’ve helped our clients deal with five or six scams in the past month alone. Student loan scams are circulating out there as well.
If the young person in your life has been contacted by a debt relief company promising to pay off their loans, don’t let them fall for it. The U.S. Department of Education (ED) offers legitimate student loan forgiveness programs and ways to lower student loan payments—all free to apply for through their official loan servicer. According to ED, here are three telltale signs of a scam:
You’re Asked to Pay an Upfront Cost or Monthly Fees
You're Pushed to Act Quickly
You’re Asked to Provide Your FSA ID Password
With unsolicited phone calls (and emails), always hang up, look up the number for your bank or loan servicer, and call them back yourself. If you think you or a young person in your life has been scammed, contact us immediately. [We highly encourage you to read, Dan Satz's article on AI Scams for more information about current fraud scams. Click here.]
Is it worth paying off student loans early?
I get this question all the time. The answer depends on facts and circumstances. Interest rates on most federal student loans range from 5% to 7.5% while private student loan interest rates can range from just under 4% percent to almost 15%. That means the average student loan borrower pays almost $30,000 in interest over their lifetime. So, it can be very advantageous to pay off the loan early if you come into a windfall such as inheritance or a large work bonus. But without a large windfall, you don’t want to put yourself in a severe cash squeeze just to pay off your loan early.
For those that went back to school later in life and have outstanding student loans in the six-figure range - they typically want to start aggressively paying off the loan. For one client who inherited several hundred thousand dollars, it made sense to pay off her student loans early. In other cases, it may better off paying the minimum until you pass away and use that money instead to save more for retirement during your last few years of work.
Conclusion If you or a family member has concerns about the new landscape for paying back student loans, reach out any time. I’m going through it myself. My team and I are happy to assist.
BRENDEN LEESE, CFP® is an Associate Wealth Advisor at Novi Wealth Partners