Connor Ketterling and his wife are among millions of Americans who stopped paying on their federal student loans during the pandemic pause.
They used the opportunity to start a debt snowball — making payments from smallest to largest — and paid off $20,000 in personal loans while readying for the birth of their first child in January, including the $8,000 in associated medical bills. Plus, they kept up with their auto loans the whole time.
"The pause helped us remain afloat in paying off our cars and taking care of paying for a baby," he said.
Former President Donald Trump paused payments on federal student loans in March 2020, citing the economic hardships COVID-19 caused. The plan temporarily set interest rates at 0%. The Trump and Biden administrations both extended the pause.
Then in June, the U.S. Supreme Court blocked President Biden's one-time student debt relief plan to forgive up to $20,000 in federal student loans for borrowers making less than $125,000 per year.
Now, interest on all federal student loans begins accruing again in September, and regular payments resume in October. The U.S. Department of Education said borrowers should receive a statement at least 21 days before their payments are due, and the notice should include both the due date and the required payment amount.
Ketterling already is thinking ahead to the $14,500 in student loans he and his wife want to pay off quickly.
"We're going to try to be more aggressive," he said.
As many prepare to start repaying their federal student loans — or for anyone looking for strategies on how to manage debt — here are some tips for how to reduce or eliminate your debt.
Log back in
Make sure you can log into studentaid.gov and verify your contact information, said Kim Miller, a Lutheran Social Service certified financial counselor. Your dashboard will have your loan details, including your loan servicer and current payment plan option.
Based on that information, go to your loan servicer's website, Miller said. Log in to your existing profile, or create a new one to set up your automatic payments. You can also call the servicer directly, but Miller warns you should be prepared for long wait times.
Practice now
Use the loan simulator on that same website to find out what payment plan meets your needs the best, Miller said. Build the habit now of setting aside that monthly loan payment before that due date hits.
She advises putting the amount you would normally pay toward your student loans into a savings account. This will give you time to adjust your budget as needed before the real payment comes due.
"Now is the time for you to create a budget," said Jade Warshaw, who's part of tough-love financial personality Dave Ramsey's team. "Find out, 'How much money do I have,' and 'How much do I have to get.' Maybe that means you get a side hustle, sell a vehicle, cut lifestyle."
If your income is less after layoffs or furloughs, income-driven repayment plans can be helpful because repayments can be as low as zero, depending on your household size and income, Miller said.
Warshaw offered a different view, warning that some people on income-based repayment plans wind up with lower payments but see loan balances rise as principal and interest aren't covered.
"I would say do your best to avoid the income-based repayment plans," she said.
If you absolutely can't afford payments, contact your loan servicer to ask about a deferment or a forbearance, Miller said. This option pauses your payments, but interest on the loans will start to accrue again. She recommended this option only sparingly, but it can be helpful to avoid defaulting.
Understand the changes
Miller said there have been a lot of "exciting changes" to the federal student loan program that people should start learning.
If you currently work for a government or nonprofit organization, you might qualify for public service loan forgiveness after making 120 qualified payments. The 36 months of payment pause counts toward your qualified payments, Miller said.
The program was once rife with problems, but she said changes during the past few years have improved this option. It's now available to many until the end of the year, even those who previously believed they were ineligible.
"Since October 2021, 615,000 people have been approved for public service loan forgiveness now for a total of $42 billion," she said.
Other options, per Miller: If you went to a school that closed or is part of the borrower defense to repayment settlement, check your eligibility for a potential discharge; and if you are totally and permanently disabled, you might qualify for a discharge of your federal student loans.
If your loans were in default because of nonpayment before March 2020, now you can fix them with Fresh Start, a free, one-time, temporary program from the U.S. Department of Education that automatically gives you some benefits, such as restoring access to federal student aid, Miller said.
She recommended contacting the Default Resolution Group at 800-621-3115 and asking which agency holds your defaulted student loans. Call that agency to request Fresh Start.
Delete your debt
Warshaw and her husband paid off $460,000 in debt, including $285,000 in student loans, over 7½ years following Ramsey's "baby steps," eliminating all nonmortgage debt from smallest to largest.
She recognized the plan to eliminate debt and never use it again is countercultural but found she can breathe easier and make decisions about her career strategically, such as going to work for Ramsey Solutions, rather than out of sheer panic.
"Most people are just one job loss away from total catastrophe," Warshaw said.
The debt snowball is one of many plans to eliminate debt. Another approach is the debt avalanche, where you prioritize paying off debt with the highest rates first. Lutheran Social Service offers a debt management plan that takes five years to pay off with the perk of lower interest rates. Most plans involve cutting back, possibly making more money and swearing off credit card debt.
Cutting a gym membership, eating at home and downsizing vacations are part of Ketterling's plan to eliminate debt totaling $60,000 in the next year and a half. First, they'll pay off one vehicle, then another and then snowball those payments into the student loans.
"I've heard of people paying off loans for 20, 30 years," he said. "It's so amazing that with intentionality, you can pay it all off in two or three years."
