How to survive student loan payments resuming, from a Minnesota financial counselor
As of Oct. 1, more than 800,000 Minnesotans are starting to pay back federal student loans worth $27 billion for the first time in three years.
According to the state’s Office of Higher Education, the median debt for a Minnesotan who has a bachelor’s degree with student-loan debt was $23,858 in 2021.
In late June, the U.S. Supreme Court struck down President Joe Biden’s student loan forgiveness program, which would have canceled loans for millions across the country. Now those with debt need to rearrange their budgets to make room for new bills.
MPR News Host Cathy Wurzer brought a few questions from borrowers to Kim Miller, a certified financial counselor with LSS Financial Counseling.
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For the full conversation, click play on the audio player above or read the transcript below. The transcript has been lightly edited for clarity.
How different is student-loan counseling from other debt counseling that you do?
I think what makes student-loan counseling unique is that for the majority of borrowers, they have federal student loans and there are a lot of different nuances and intricacies regarding the federal student loan program, regarding what type of loan they might have.
They also have access to a lot of different programs and repayment options that typical, normal unsecured debt does not usually so through the federal student loan program, people may have access to Public Service Loan Forgiveness, or different discharge or cancellation programs.
And then, especially with student loans through the federal program, they have access to the income-driven repayment option, which is a different way to repay their student loan debt over time.
Where do I start? What's the first step toward rearranging your budget to include these student loan repayments?
Regarding their own personal finances, we always encourage people just to take a look at what's going on. A lot of times when I talk to people, I hear, “well, I kind of know what my bills are,” but they have never, in recent months, put everything down on paper.
So if someone doesn’t know where to start, I say, get out piece of paper, an old notebook, spreadsheet, sometimes there's phone apps that can help things get organized — but let's take a look at what's coming in. How often does it come in? Do you have steady income through a paycheck? Or do you have a side gig income that comes periodically?
Write down what's actually coming in regarding income, and then write down your main living expenses. Everyone can normally list off what their main bills are regarding housing, transportation, that type of thing.
It's those extra things that kind of catch people off guard, the things that may not happen once a month, but happen every so often, like clothes, or an emergency or insurance coming due.
The second thing is once you write down all your major income and bills, then take a look at wherever you spend. How do you spend your money? Through a debit card or credit card, look at financial institutions statements, look at the past month or two to kind of see what trends they're seeing and where's the money going.
When you put that into categories, then you can see trends or habits that might be built into overall spending and you can see how you can squish your student loan payment back into your budget.
If I start on a SAVE plan, can I switch to a different one later?
The SAVE plan is the newest income-driven repayment option for federal student loans. People who were previously in what was the REPAYE option automatically got shifted into the SAVE plan and then borrowers can also opt into it online, too.
If you go to studentaid.gov, that is the one-stop shop for your federal student loans. You can log in and then you'll be able to look at what the payment might be like for you.
But the thing with federal student loans is you're never locked into a payment plan. Once you sign up for it, you're not locked into it for life. You are free to change your plan based on circumstances.
There's a great online simulator tool that's available on studentaid.gov, that you'll be able to see all your different repayment options. So for some people, the SAVE plan will work for them, and they can switch to it. And then later on, if something changes or income increases, or you know their circumstances change, they are free to change to a different plan in the future.
I don't make enough money to pay my monthly payment. Can I refinance?
So with federal student loans, there are so many different options regarding repayment and potentially putting it on pause through a deferment or forbearance. We do normally encourage people to try to keep it within the federal student loan program because you have so many other options, like I said, through a future Public Service Loan Forgiveness or other type of programs available and benefits through that.
Refinancing means they would pick a private student loan company, and that is usually credit based and then you're at the mercy at whatever the lender is willing to do for you. So a lot of times, that may not even be an option for people.
And so what we recommend is if you have federal student loans, and you're struggling to make your payments, look at an income-driven repayment plan, especially if your income has decreased since the payment pause because you may be surprised that the payment might be much lower than what you are anticipating.
For many more Minnesotans and people nationwide, they’re finding that their payment might be zero under the the new SAVE plan. And as I always like to say, $0 payments count as payments under federal student loan programs.
Contact your loan servicer and see what options might be available. See if they can take a temporary deferment — it'll buy you some time to assess your overall financial situation. You can always give us a call at LSS. We offer free student-loan counseling and repayment assistance for Minnesotans so that we can help assess your situation too.
Should I prioritize credit card debt or student loans?
I always say, like, what is your main priority? What is going to be your biggest motivation? And so for some people, paying off student loans is the more motivating factor, they might want to just go ahead and pay them off and they're motivated to do that and they're going to stick with it, which is great.
If you want to go just pure interest savings wise, I would always compare what interest rates you are paying on your student loans versus credit cards. Credit cards tend to be a much higher interest rate and so that might save you potentially money in the long run if you pay off your credit cards faster.
Credit card interest is also calculated a little bit differently because it's like interest on interest after a while so it can grow a little bit faster than what student loans can as well.
Ultimately it comes down to what is going to be motivating for you the most. But if you want to just look at straight-up savings, interest wise, putting that extra money towards credit card debt might be saving more money in the long run.
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Audio transcript
In late June, the US Supreme Court struck down President Biden's student loan forgiveness program, which would have canceled loans for millions across the country. And now borrowers are moving around tight budgets to make room for new large payments. Joining us right now is Kim Miller, a financial counselor with Lutheran Social Services. Kim, welcome to the program.
KIM MILLER: Hi. Thanks for having me today.
CATHY WURZER: I bet folks are not at all familiar with Lutheran Social Services being one of the largest nonprofit financial counseling agencies in the state. I had no idea. How long have you guys been around?
KIM MILLER: We've been around since-- for over 30-plus years. I believe since 1987, we've been providing nonjudgmental financial counseling to Minnesotans and just like you and just helping people feel more confident about moving forward in their financial journey.
CATHY WURZER: So are you getting some calls and some emails from folks a little sweaty palmed about this situation to having to repay student loans with these big influx in payments?
KIM MILLER: Yes, we have received a definite increase in calls from borrowers who are entering repayment. The main comment that we hear is, I just want to make sure I'm on the right track. And they want to make sure that they are aware of all their repayment options. And they want to see how it fits within their spending plan.
CATHY WURZER: How different is student loan counseling from, say, other debt counseling that you do?
KIM MILLER: I think what makes student loan counseling unique is that for the majority of borrowers, they have federal student loans. And there are a lot of different nuances and intricacies regarding the federal student loan program, regarding what type of loan they might have. And then also they have access to a lot of different programs and repayment options that typical, quote unquote, "normal" unsecured debt does not usually.
So through the federal student loan program, people may have access to public service loan forgiveness or different discharge or cancellation programs, and then especially with student loans through the federal program, they have access to the income-driven repayment option, which is a different way to repay their student loan debt over time.
CATHY WURZER: So Kim, we have a lot of questions that people have sent us via social media. Would you like to take a crack at some of them?
KIM MILLER: Sure, let's--
CATHY WURZER: Good.
KIM MILLER: Let's go.
CATHY WURZER: OK. One person really just wants to know, where do I start? So what's the first step toward rearranging your budget to include these student loan repayments?
KIM MILLER: Oh, regarding their own personal finances, we always encourage people just to take a look at what's going on. A lot of times, when I talk to people, I hear, like, well, I kind of know what my bills are. But they have never, in recent months, put everything down on paper.
So if someone goes, where do I start, I say, get out a piece of paper, an old notebook, a spreadsheet. Sometimes there's phone apps that can help things get organized. But let's take a look at, what's coming in? How often does it come in? Do you have steady income through a paycheck? Or do you have a side gig income that comes periodically?
Write down like what's actually coming in regarding income and then writing down your main living expenses. Everyone can normally list off what their main bills are with regarding housing, transportation, that type of thing. It's those extra things that kind of catch people off guard, the things that may not happen once a month but happen every so often like clothes or an emergency or insurance coming due.
And so that's where-- the second thing is once you write down all your major income and bills, then taking a look at wherever you spend-- how you spend your money through a debit card or a credit card, looking at financial institution statements, looking at the past month or two to see what trends they're seeing, where is the money going and kind of putting that into categories.
And usually, then you can kind of see trends or habits that might be built into their overall spending to see how they can squish their student loan payment back into their budget.
CATHY WURZER: Good advice. One person wants to say, if I start on a SAVE plan, can I switch to a different one later? For folks not familiar, what is the SAVE plan.
KIM MILLER: So the SAVE plan is the newest income-driven repayment option for federal student loans. And so it replaced the REPAYE. So people who were previously in what was the REPAYE option automatically got shifted into the SAVE.
And then borrowers could also opt into it online too. So if you go to studentaid.gov, that is the one-stop shop for your federal student loans. You can log in, and then you'd be able to look at to see how the SAVE plan might-- what the payment might be like for you.
But the thing with federal student loans is you're never locked in to a payment plan. Like once you sign up for it, you're not locked into it for life. You are free to change your plan based on circumstances. And so there's a great loan simulator tool that's available on studentaid.gov that you'll be able to see all your different repayment options.
So for some people, the SAVE plan will work for them. And they can switch to it. And then later on, if something changes, their income increases, or their circumstances change, they are free to change to a different plan in the future.
CATHY WURZER: So possibly with that information, maybe this next listener has a little bit of a light at the end of the tunnel. I don't make enough money to pay my monthly payment. Can I refinance?
KIM MILLER: So with federal student loans, there are so many different options regarding repayment and potentially putting it on pause through a deferment or forbearance that we do normally encourage people to try to keep it within the federal student loan program. Because you have so many other options, like I said, through future public service loan forgiveness or other type of programs available and benefits through that.
Refinancing, a lot of times, what that means is they would pick a private student loan company. And that is usually credit based, and then you're at the mercy at whatever lender is willing to do for you. So a lot of times, that may not even be an option for people.
And so what we recommend is if you have federal student loans, and you're struggling to make your payments, is to look at an income-driven repayment plan, especially if your income has decreased since the payment pause. Because you may be surprised that the payment might be much lower than what you were anticipating.
For many more Minnesotans and people nationwide, they're finding that their payment might be 0 under the new SAVE plan. And I always like to say $0 payments count as payments under federal student loan program. So it does count.
So contact your loan servicer. See what options might be available. See if they can take a temporary deferment. It'll buy you some time to assess your overall financial situation. You can always give us a call at LSS. We offer free student loan counseling repayment assistance for Minnesotans so that we can help assess your situation too.
CATHY WURZER: Final question. It's a good one too. Should I prioritize credit card debt or student loans?
KIM MILLER: Hmm. Well, I always like to start off with-- people always like, tell me what to do. And I'm always like, well, it's your life. You have to decide what you want to do.
So I always say, like, what is your main priority? What is going to be your biggest motivation? And so for some people, paying off student loans is the more motivating factor. And they might want to just go ahead and pay them off. And they're motivated to do that. And they're going to stick with it, which is great.
If you want to go just pure interest-savings wise, I would always compare what interest rate are you paying on your student loans versus credit cards. Credit cards tend to be a much higher interest rate. And so that might save you, potentially, money in the long run if you pay off your credit cards faster.
Credit card interest is also calculated a little bit differently because it's like interest on interest after a while. So it can grow a little bit faster than what student loans can as well.
So ultimately, it comes down to, what is going to be motivating for you the most? But if you want to just look at straight-up savings interest wise, putting that extra money towards credit card debt might be-- save you more money in the long run.
CATHY WURZER: All right. Well, I've learned something. Kim, thank you so much.
KIM MILLER: Thank you for having me.
CATHY WURZER: Kim Miller is a financial counselor with Lutheran Social Services.
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