Expert Advice for Borrowers After the Fall of Student Loan Forgiveness. What Should You Do Next?

Last week's US Supreme Court's decision to strike down widespread federal student loan forgiveness has left millions of student loan borrowers grappling with what's next.

The White House released a statement hours after the June 30 Supreme Court decision indicating there may be other avenues toward broad student loan forgiveness. But experts say borrowers should start preparing for the reality that debt relief may not materialize.

"At this point, I find it highly unlikely that we would see some kind of alternative rise to the occasion," said Lawrence Sprung, author of Financial Planning Made Personal, and founder of Mitlin Financial.

Regardless of what happens next with student debt relief, experts recommend borrowers get familiar with their student loan debt and current finances.

"When we get worried about money, there's often a temptation to avoid the situation altogether. But facing it head-on will be better off in the long run," said Jonathan Petts, a lawyer and co-founder of Upsolve, a nonprofit serving low-income Americans burdened with student loan debt.

Stacey MacPhetres, senior director of Education Finance at EdAssist by Bright Horizons, agrees. "Before we think about the what ifs, think about what is."

Since many of us haven't paid federal student loans in more than three years -- and recent graduates may be starting repayment for the first time -- here's what experts suggest you do now to prepare before student loan payments start back up in the fall.

Read more: Here's When Student Loan Payments Will Resume

'Don't panic, but also don't ignore it'

Regardless of what happens next, experts suggest reviewing your finances soon, so you can figure out how your student loan payment fits into your budget. Though the recent SCOTUS decision may be discouraging for the 44 million borrowers with student debt, MacPhetres suggests taking a beat, getting organized and then reviewing your options.

"First -- don't panic, but also don't ignore it." said MacPhetres. "With the defeat of loan forgiveness, it's time for borrowers to think about what they need to do to get their financial houses in order to begin repayment in October."

If you haven't logged in to your student loan account in a few years, you might not remember how much you're on the hook for each month, or even who your loan servicer is. 

"Many borrowers will have a different company servicing their loans than they did prior to the payment pause," said Petts. "This is important to know because you'll contact your servicer to change your payment plan or make further inquiries into your loans." 

You can find out who your servicer is by visiting the Federal Student Aid website, where you'll also be able to see your total student loan debt.

Next, review your finances and compare repayment options

Once you know your servicer's name, log in to your account to make sure your repayment plan and payment details are correct. You can also use the loan simulator on the FSA website to help you compare repayment plans. But before you can figure out the right plan for you, you'll need to take a look at your finances.

"It's a difficult time financially for many people, but knowledge is power here," said Petts. "You need to know your income and debt numbers."

You should start by examining your bank statements. "Put together a budget and figure out exactly how much money you have coming in each month and how much money you have going out," said Sprung.

Comb through your expenses to see what you can potentially eliminate, reduce or even negotiate, Sprung suggests. You might find you can negotiate certain expenses like your cellphone or internet bill. "I had a promotional rate with my alarm company which expired," he said. "My payments went from around $20 a month to $80 a month." By negotiating with the company, Sprung was able to lower this expense to below $40 per month.

Once you understand your monthly finances and know if you have any wiggle room in your budget, you can start comparing student loan repayment options. "If you're looking at the standard repayment plan and it feels overwhelming, consider income-based programs," said MacPhetres.

One option you might consider is the new Saving on a Valuable Education, or SAVE, repayment plan -- which officially replaces the former Revised Pay-As-You-Earn plan, on July 1, 2024. This new income-based repayment plan is expected to lower federal student loan payments to $0 for more than 1 million borrowers, according to the US Department of Education.

"If you have a lot of debt relative to your income, you'll probably qualify for an income-based repayment plan," said Petts.

If you don't qualify for $0 or near-zero monthly payments, compare different repayment plans now, before the payment freeze is lifted. "Most borrowers will qualify for an income-based program, but it doesn't always mean it will be the best program," said MacPhetres. You can view the current income-driven repayment plans at the FSA website.

Borrowers who can afford to resume monthly student loan payments, or those who've already earmarked funds toward future student loan payments, should consider storing this money in a high-yield savings account, where you can earn a competitive return. "You can also set up payments directly to your student loan from that high yield savings," Sprung said.

If you're facing financial hardship, reach out to your loan servicer

After reviewing your options, if you need additional assistance, you should reach out to your loan servicer -- particularly if you're experiencing financial hardship, like a job loss or reduced income. Though the SAVE repayment plan may help keep your monthly payments low, if you don't qualify, or if you have private student loans -- which aren't eligible for the protections federal student loans offer -- get in touch with your student loan servicer.

"If it's overwhelming, ask for help," said MacPhetres. "Talk to your loan servicer. They can provide you guidance around repayment programs but also, if necessary, forbearance options and even deferment options." 

You can learn more about federal student loan forbearance and deferment options at the FSA website.

Don't overlook other forgiveness and debt relief options

Though broad forgiveness is off the table for now, you may be eligible for student debt cancellation through other federal and state programs, MacPhetres said. For example, government workers, teachers, first responders and firefighters may be eligible for full debt relief through the Public Service Loan Forgiveness program.

She also recommends looking into state-based forgiveness programs, as well as other industry-specific debt relief options. The FSA website offers a more comprehensive list of other federal student loan forgiveness programs.

Your employer might also offer student loan repayment benefits, such as payments toward your student loans. MacPhetres suggests researching any options available to you to ensure you're maximizing any student loan relief you might've overlooked.

If you're juggling different types of debt, here's how to prioritize

For many, student loan repayment is coming due at a time when interest rates are at historic highs, making other types of debt, like credit card balances and loans even more expensive. And though inflation has dropped since its record high of 9.1% in June 2022 -- currently tracking at 4% year-over-year as of May 2023 -- prices are still high and wages haven't kept pace.

When considering other debt payments you're already juggling, paying at least the minimum on each account is important. But beyond your minimum payment, there are certain debts you want to prioritize paying down first, such as high interest credit card debt. 

"I would pay at least the minimum for the student loan, and I wouldn't pay more until you knock down those credit cards," said Sprung. Put extra money toward your credit cards, then as you knock down one credit card balance, apply the money you would've reserved for that card payment to the next debt, and so on.

If you're grappling with a large amount of credit card debt, you might consider a debt consolidation loan to move your balances to one fixed-rate monthly payment that you can spread out across several years. Another option is a 0% introductory balance transfer card, which can offer you a respite from interest for a period of time, while you work on knocking down your debt. 

A balance transfer may make sense if you can pay off your debt during the introductory offer period. But if you can't, be careful when shifting balances to 0% offer cards. "It can give you some relief, but that's not a long term solution. Plus, once interest kicks back in, you can end up back where you started," said Sprung.

Refinancing certain debts could make sense, but be wary of refinancing your federal student loans. "I'm generally somewhat reluctant to encourage folks to refinance [federal student loans]," said MacPhetres. "In doing that, you take yourself out of all of the sort of rights and privileges that come with being a federal student loan borrower." Some of those rights include the current federal student loan payment pause, income-based repayment and any future benefits that the Department of Education may extend to federal borrowers.

Though it could make sense to refinance a private student loan, it's typically only worthwhile if you can secure a lower rate -- or if you need to stretch out payments to make them more affordable. Just be aware that if you commit to a new payment timeline, you may end up paying more in interest over the long run, in exchange for a more affordable monthly payment.

"Borrowers should know that they aren't alone if they're feeling stressed or confused right now," said Petts. "It's no small task to go from a three-plus-year payment reprieve to budgeting for a student loan payment while also dealing with other debt and difficult economic conditions. If student loans are just part of your overall debt, and you feel like you just cannot get ahead, it's worth looking into filing bankruptcy or at least speaking with a credit or financial counselor to see what your options are."