With the departure of the student loan servicer, this is what the borrower needs to know

The student loan service industry has better days.

In the past few months, many service providers-companies that have signed contracts with the federal government to manage billing, customer service, etc.-are exiting the loan service business.

This is a quick breakdown:

  • In July, FedLoan stated that it did not intend to renew the contract with the government, which will end in December. More than 8 million borrowers will be affected and transition to the new service organization.
  • Granite State Management & Resources provides loan services to 1.3 million borrowers and will not renew the contract with the Ministry of Education at the end of 2021.
  • Moreover, in September, Navient, one of the country’s largest service providers, transferred its 6 million student loan accounts to Maximus, another service provider.

Richard Cordray, Chief Operating Officer of Federal Student Aid, recently delivered a policy speech to the Education Finance Committee.His remarks were given politics.

In his speech, he said that part of the renegotiation with loan service providers will be new performance and accountability indicators. According to Cordray, some service providers were not satisfied with this, so they parted ways.

“Some service providers have decided to withdraw from the program instead of fighting these new realities. Others have grasped our intentions and accepted the new normal that puts borrowers first.”

What does this mean for borrowers?

The payment suspension that began in March 2020 is called Student loan tolerance, Will end on January 31, 2022. This means that 43 million borrowers will start repaying loans early next year.

In theory, they will only pay new loan service providers. It’s no big deal, right? But the problem is that the transition time is short. The timing is not ideal.

Cordray said that due to the complexity of restarting tens of millions of payments at the same time, the suspension of payments is an “unprecedented challenge.” He said that in terms of borrowers’ expectations, the political debate about student loan forgiveness is not helpful.

He said: “We can expect that when many borrowers are led to believe, or even hope that this will never happen, they will not rush to resume repayment.” “Overcoming psychological barriers with millions of Americans may be better than we know. Is much more difficult.”

How to solve the student loan repayment problem

Here are some actions we recommend you to take to repay the loan.

1. Establish an emergency fund.

“I need to pay back something, would you let me save money?” Yes!

A sort of 1,000 USD Rainy Day Fund It will help you pay cash for everyday emergencies that may really slow down loan repayments. When it comes to student loans and the interest attached to them, every $50 is important.

2. Determine if you qualify for an income-oriented repayment plan.

The standard repayment plan for federal student loans is 10 years.

If you are working hard to make these payments, you have Multiple payment plan options These include income-based repayment plans, income contingent repayment plans, pay-as-you-go plans and revised pay-as-you-go plans.

3. Lower interest rates.

It is always helpful to reduce the percentage of interest you pay, no matter how small. Federal loans usually have lower interest rates than private loans, but you can still consider lowering these interest rates.

Assuming you have a stable income and good credit, many websites allow you to compare the interest rates of different companies to refinance your loan. If you set up automatic payments, some service providers will also reduce your interest by 0.25%.

If you have a personal loan, it never hurts to call your service provider to explain your situation and ask for a new, lower interest rate.

4. Choose the debt repayment method

Sometimes just making a simple, specific plan helps to motivate. You can see exactly what your payment will look like in the future, and you know exactly what you need to do to get out of debt.

this Debt avalanche It is such a plan. You start with the highest interest loan and then focus on making as many additional payments/cash for that loan as possible. After payment, you will be transferred to the next loan with the highest interest rate. The avalanche will continue until you pay off your debt.

Another plan is Debt snowball method. With this plan, you start with the lowest balance first. Pay everything off and move on to the next lowest balance. And so on, you finally paid off the debt.

5. Make sure you have a budget.

A sort of Zero-based budget Designed to pay off debts quickly.

Every month, you will list your expenses and prioritize them. Using your income as a starting point, you “spend” all your money on these expenses until it reaches zero.

Unlike percentage-based budgeting, when using a zero-based budget, you are responsible for how much you spend on debt each month. If you are working on student loan debt, you can change the percentage based on other monthly expenses.

You can use a quarter of your monthly income in one month, and you may use half of it crazily next month. up to you. In addition, you can use any remaining funds to repay debts.

6. Find a part-time job.

The best way to pay off debts? Earn more money!

Whether it’s tutoring, freelancing, part-time work, teaching ESL, online transcription, or even renting a friendship, there are countless ways to earn extra income.In fact, we have 50 unique ideas Let you start.

7. Cut expenses.

Yes, this is not fun. However, if you really want to get rid of student loan debt, and you want to get it done faster, you have to do something else.

The outflow of student loan service providers is just one of many problems that have plagued the student loan industry in recent years. Our best suggestion? Do everything possible to get rid of student loan debts as quickly as possible and eliminate this ongoing financial problem in life.

Robert Bruce is the senior author of The Penny Hoarder.

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