What Gen Z borrowers need to know about student loan payments restarting

Welcome to Keeping the Balance, a newsletter for Gen Z. Subscribe to receive upcoming editions. This week, I spoke to financial advisor Winnie Sun and financial educator Eryn Schultz. They shared advice on preparing for student loan payments to restart and managing a budget while paying off debt.?

Student loan payments are set to restart in October, with loan interest beginning to accrue again on Sept. 1. Gen Z borrowers who graduated into the loan forbearance period may have never made a payment before. So, what do they and others need to know?

According to the Federal Student Aid website, borrowers will receive a bill with their payment amount and due date at least 21 days before the payment is due in October. Borrowers should take action now to prepare for repayments by ensuring they can access their loan servicer, their contact information is up to date and they understand what type of loans they have.

To learn more about what Gen Z borrowers should do now to prepare for repayments, I spoke to financial advisor Winnie Sun. I also talked with Eryn Schultz, a financial educator who specializes in money management for people in their 20s, about how Gen Zers can budget while paying off student loans. Additionally, Schultz shared details on the new SAVE Plan and who it benefits most.

Below are excerpts from my conversations with Sun and Schultz (some quotes were lightly edited for length and readability):

Preparing for student loan repayments with Winnie Sun

LinkedIn News: How should borrowers prepare for student loan payments to restart in October?

Sun: Get comfortable knowing what kind of loan you have. You want to know where you make the payment. Simple things like, what's my account number? How do I go online? If I set up auto pay, is that still ready to go? You want to get comfortable with the website. Then from there, get organized. What will make you feel comfortable to be able to make your payments? Put important due dates into the calendar. Make sure you set up alerts.Make sure that you have enough money set aside for that payment. Interest does accrue starting September 1st. So, what I've been telling our clients is, 'If you're able to make some payments now before interest starts accruing, that's great.'?

LinkedIn News: What should borrowers do if they're unsure where to find their loan??

Sun: You should be receiving either an email or something in the mail. If you're not sure, go to the financial aid office at your school and see if they have any information for you. There should be a record. You can even check your credit report at AnnualCreditReport.com, which is free, and see what loans you have outstanding that show up there. Then, go to Google. Reach out [to your loan servicer] and say, 'I think I have a student loan with you, but I'm not even sure where to start.' These student loan companies are very responsive. They can check.?

LinkedIn News: Do you recommend enrolling in autopay?

Sun: I love autopay, especially if you're juggling school and work. It's really easy to miss your payment deadline. Now that being said, autopay isn't for everybody. You want to make sure you have a cushion in your checking account that the money is being pulled from. If you're working paycheck to paycheck, then autopay might not be ideal. It would be a great challenge for you to work on, before the end of 2023, to create a cushion so you can set your loan up on autopay.

LinkedIn News: What do borrowers need to know about repayment plans??

Sun: There are more repayment plans now than there were even a few months ago. Even if you are on one, it's still good to consider your options. First things first, go to your loan servicer. Their website should be very clear with your different options. If you're not sure which one to choose, not to worry. Jump on the website, go in the chat or set up a call.?

LinkedIn News: What should borrowers do if they want to lower their monthly payment?

Sun: There is a program called SAVE. If you are on the REPAYE plan, then you should automatically get enrolled in SAVE, which should decrease your [monthly] payment. If you're not on that, you want to make sure you go ahead and apply. It generally takes about 10 minutes to apply. The processing on that, they're estimating to be about four weeks.

LinkedIn News: What happens if a borrower misses a payment??

Sun: If you can't make the loan payment, you feel like you can't afford it, you need to communicate ASAP. Contact our loan servicer, explain the situation of why you won't be making your payment and see what options they have for you. What you don't want to do is hide under a rock and wait for the payment day to come and not make payment. It can impact your credit score. Also, if you don't make payments for [a certain number of days], then they will recharacterize you as being in default, which is not good.?

Budgeting while paying off debt with Eryn Schultz

LinkedIn News: What's your advice on creating a budget that accounts for your monthly student loan payment?

Schultz: The best place to start is to understand, 'It's August 28th. I have about 30 days until student loan payments resume. Do I have extra room in the budget? Do I have cash left over every month? Or am I already maybe spending more than I'm making, in which case, where's this money going to come from?' There are lots of budgeting templates out there. From there, you can layer on from StudentAid.gov how much your payment will be. That can give you an idea of, 'I don't need to make any changes. I've got it.' Or, 'I need to look at my finances.'

LinkedIn News: What if a borrower realizes they don't have enough money to cover their student loan payment based on their current expenses??

Schultz: Look at whatever your two or three biggest discretionary line items are. For some people it's eating out. For some people, it's shopping. For some people, Amazon should really be its own category. The easiest place to make change is to renegotiate some recurring bills if you can. Maybe you're not using your gym membership and you could cancel it, or you haven't renegotiated your car insurance since you first got a car. Those are easy places to free up money. There are also things like, 'I'm going to cancel Prime for three months to see if that reduces my spending,' or 'I am going to only go to free concerts for the next two months because I went to Beyonce and Taylor Swift this summer and I have to make up for that.'

LinkedIn News: Borrowers can also explore different repayment plans if they are unable to cover their monthly payment amount. How does the new SAVE plan work, specifically??

Schultz: If you are looking at the math and you are going to struggle to make your student loan payment, that is a good moment to say, 'I should maybe consider one of these income-driven repayment plans from the government.' Early plans I think capped your payments at 15% of income. The really powerful thing about the new plan that Biden just announced, SAVE, is that for undergrad borrowers, starting next year, it'll actually cap your undergrad loan payments at 5% of income.?

LinkedIn News: Who should consider applying to the SAVE program?

Schultz: One, you would struggle to make your current student loan payment. It's not in the budget because you [won't be able to] afford reasonable rent, food and other things. Two, if you are pursuing public service loan forgiveness, this is a really great plan to consider because the goal is to pay as little as possible and get your loans forgiven because you're working for the federal government. That changes the timeline on forgiveness from 25 years to 10 years. Three, if you have three or more members in your family, that is a good reason to consider SAVE because it excludes 225% times the federal poverty line and the federal poverty line is tied to the size of your family.

LinkedIn News: Who should not consider applying to the SAVE program??

Schultz: One is if you're a very high earner. Let's just say if you're making a six-figure salary, there's no cap on how high your payment can be with SAVE, so it may actually be higher. If you're not pursuing loan forgiveness, it doesn't make sense. If you're not going to try to get your loans forgiven after 25 years, you may actually pay more over the lifetime of the loan on SAVE versus on a standard repayment plan.

LinkedIn News: What's your advice on setting goals to pay off student loan debt??

Schultz: People get laser focused on paying off their student loans that they forget about everything else. You can't live off of being debt free in retirement, so don't not contribute and get your 401k match. Don't put your last dollar toward your student loans and then get stuck with a medical bill or you need new car tires and you have credit card debt all of a sudden. Be realistic about a timeline. If you get bonuses at work, I'm a big fan of using bonuses as a way to help pay off debt.

Check out additional resources to prepare for repayments ??

• Learn six ways to prepare for student loan repayments here.
• Determine when you should take certain actions here.
• Explore different repayment plan options here.
• Find out more about the SAVE Plan here.
• See an example of how the SAVE Plan works here.
• Understand the pros and cons of the SAVE Plan here.
• Read about public service loan forgiveness here.

?? College corner: Tips for career starters?

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What to know about working remotely by Todd Dybas: Remote workers feel disconnected. That is according to a new Gallup poll which discovered just 28% of remote workers feel their company's mission and their job's importance are in sync. That's down from 37% in 2020. The same sentiment among on-site and hybrid employees did not suffer such a decline. It instead remained near level year-over-year. Read more here.

?? The 411: What Gen Z is talking about

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Eckstein writes on LinkedIn that three of his closest friends quit their corporate jobs to build startups — and he didn't feel the urge to follow their path. "You should make a decision based on what's best for you, not for others, and certainly not what 'social media' gurus are telling you," Eckstein says.

See more in Eckstein's post below ??

??Food for thought: Weigh in on the latest trends

Do you have a tried and true bedtime routine? Or, do you skip out on nighttime rituals and instead scroll endlessly on your phone? Many Gen Zers are guilty of the latter.

A new poll revealed that Gen Z is the most likely generation to not finish their bedtime routine before getting some shuteye. Why? Some 68% of Gen Zers say they typically fall asleep with their phone.

Although Gen Z is the most likely to prioritize sleep, our generation struggles to stick to a routine — which means we're missing out on the benefits. Studies show that consistent nightly rituals not only promote quality sleep, but also support overall health and well-being.

Weigh in: Do you have a bedtime routine? If yes, what does it entail and what are your tips on remaining consistent? If not, what's stopping you? Take the poll below.