What you can do to stay ahead of student loan interest rates

Published: Sep. 5, 2023 at 5:40 PM CDT
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ROCKFORD, Ill. (WIFR) - Interest on federal student loans started accruing on Sept. 1 for the first time since before the pandemic.

And borrowers expect to see their first bill as soon as October.

According to the White House, more than 4 million people are enrolled in President Biden’s repayment plan, also known as “SAVE,” hoping to get some relief from these repayments, here’s how it works.

The plan calculates monthly payments based on a borrower’s income and family size. If the borrower covers the full monthly payment, unpaid interest won’t accrue. They’ll only need to pay a portion of discretionary income. With SAVE this will be equal to the difference between a person’s adjusted gross income and 225% of the poverty level. For existing plans, the monthly payments are higher.

Since this is the first time payments are required in more than three years, it’s important to be proactive.

“Start making those payments. And if we have extra money to put at those loans. We put that money there as soon as we can. The quicker you get the balance or the principle paid down, the less interest that will build up on that loan over time,” said Shane Stuart, a financial advisor with Anchor Wealth Management.

Stuart also urges parents to advise their kids on financial literacy before college, especially since there are other options than a 4-year institution.

“There are options out there that can offer well-paying, good-paying careers. I know the trades do a good job of advertising what they can offer. It’s about what that individual wants, what they want to do for a living. And to your point, I hope schools, I hope parents, mentors in their lives, help educate them on what options are out there for them,” he said.

The fewer number of payments or the lower the total amount you pay on your loans, the more they will drag on. That’s why Stuart stresses the importance of prioritizing paying them off as quickly as you can.

An important website you can go to for tips and resources is www.studentaid.gov.