Student loan payments have you worried? Financial advisers offer  strategies for borrowers

With the clock ticking down to when federal student loan borrowers will be required to resume their monthly payments following a more than three-year pandemic pause, many Long Islanders still find themselves unprepared to take up this obligation again. They’re unsure how they’ll be able to afford these bills, and some are still confused about which payback programs could ease their burden.

The first resumed payments are due in October, but the exact due dates vary, and this year’s spring graduates do not have to make payments until the grace period expires — usually six months after completing their studies.

“I felt like a weight had been lifted off my shoulders, giving me temporary freedom from a looming financial obligation,” Tyler Ramirez, 23, of West Babylon, said of the break from payments. He recently started his own personal training business and also teaches fitness classes at Hofstra University. 

Ramirez, who lives with his parents because he said there is no way he can afford his own place, has loans totaling  $15,222, while his annual salary from both jobs is about $19,000.

I felt like a weight had been lifted off my shoulders, giving me temporary freedom from a looming financial obligation.

— Tyler Ramirez

“All of this compounds the financial pressures I’m facing,” Ramirez said of the student loan payments beginning again. “With my current financial struggles ... adding another monthly payment creates a significant burden. It’s a stressful aspect that constantly hangs over my head.”

The reprieve, which went into effect in March 2020 and froze the accounts of nearly 44 million borrowers, ends next month following several extensions during both the Trump and Biden administrations. Congress stopped President Joe Biden's bid for another extension, and the Supreme Court in June struck down a student loan forgiveness plan proposed by Biden.

Interest rates, which are fixed and vary by loan, had effectively been set at 0% since the pause started, but on Sept. 1 they began accruing again at the pre-freeze rate. Monthly payments could change, however, for borrowers who made optional payments or other changes such as consolidating their loans or who are participating in income-driven repayment (IDR) plans .

The choices can be confusing. 

IDR plans with the U.S. Department of Education include the popular Pay As You Earn (PAYE) and Biden's new IDR plan, Saving on a Valuable Education (SAVE), with SAVE replacing Revised Pay As You Earn (REPAYE).

Borrowers who have made no changes to their loans are automatically enrolled in a standard 10-year repayment plan and they can expect to be enrolled in the same plan they had before the pause, though they can enroll in income-driven plans that could decrease their payments.

Those enrolled in REPAYE have automatically been switched to SAVE. As of Sept. 12, 4 million borrowers had enrolled in SAVE and another million had applied, according to figures provided by U.S. Education Department officials. The plan caps accruing interest for eligible borrowers who stay on top of their payments and largely decreases monthly payments. Borrowers making less than $15 an hour would not have to make any payments at all.

The main difference between PAYE and SAVE is the length of repayment. PAYE is for 20 years for both undergraduate and graduate loans; after you make payments for 20 years, any remaining balance is forgiven (and taxed as income). SAVE is for 20 years for undergraduate loans and 25 years if any of your loans are from graduate school.

Through September 2024, the government has instituted an “on-ramp period" during which there won’t be the usual consequences, such as reports to credit bureaus, for missing a payment.

Like Ramirez, Leah Jackson, 29, of Rocky Point, has to work two jobs to make ends meet. She’s an associate attorney and hotel front desk agent and said she is “terrified” for her payments to start.  Between her undergraduate degree and law degree, she has federal loans amounting to nearly $260,000  with an estimated monthly payment of nearly $3,000. Her annual salary from her two jobs combined is about $85,000.

I am terrified for payments to go into effect.

—Leah Jackson

“I am terrified for payments to go into effect,” Jackson said. “I began my legal career working a public service job in hopes of getting student loan forgiveness after 10 years, but the salary I was receiving was not enough to sustain regular costs of living, so I had to leave that job and in leaving lost my [chance at] loan forgiveness.” She added, “You are stuck between a rock and a hard place — working a public service job that does not pay you enough, but maybe you will get loan forgiveness, or working a regular job and having to make unaffordable payments.”

Susan Quigley, owner of Garden City-based Squigley Financial LLC, a financial services firm, said many people have a real struggle to pay back student loans under any circumstances, no matter their incomes.

“Clients and the parents of students who have funded their children’s college have all had issues managing debt and prioritizing which payments to make versus trying to save for retirement or build some emergency savings,” Quigley said. “Even wealthy clients are struggling to fund some universities that are now over $80,000 a year.”

Quigley said she doesn’t think most people realize the magnitude of a student loan commitment.

“I think people are too unrealistic about the level of income they have to have after they graduate and how much it will cost to live here in New York,” she said.

I should be thinking about retirement but instead I am losing sleep over this crippling debt.

— Lisa Hollander

Lisa Hollander, 60, a Medford accountant and mother of two grown sons, was able to pay back the student loan she took out when she went to college following high school, but she decided to return to school in 2007 to go for her MBA. She also took out a Parent Plus loan to pay tuition for one of her sons.  Her combined balance is $255,000, with a monthly payment of $1,340. 

Hollander said she has explored ways to reduce her payments but remains confused about how to do that. She thought she was eligible for the SAVE plan, but her loan servicer told her she wasn’t a candidate because she consolidated her student loans and her Parent PLUS loan.

Hollander said she had no idea that at this point in her life she’d be so concerned about her financial situation.

“I should be thinking about retirement but instead I am losing sleep over this crippling debt,” Hollander said.

Advice from the professionals

Newsday asked two financial experts to offer advice to help these Long Islanders handle the restart of their student loan payments.

The experts:

• Nicholas Prewett, director of financial aid for Stony Brook University
• Leslie H. Tayne, a credit and debt expert who is founder and head attorney at Tayne Law Group P.C. in Melville

TYLER RAMIREZ, 23, of West Babylon, personal trainer and fitness instructor

Annual income: $19,000

Student loan debt: $15,222

Monthly loan payment: $152

Monthly rent/family expenses: $550

Other monthly bills: $1,000

Credit: Debbie Egan-Chin

Ramirez attended three colleges in pursuit of a fitness coaching career.  After working first in commercial gyms, in 2022 he started his own personal training business and also teaches fitness classes at Hofstra. He makes about $19,000 annually from the two jobs and has student loans totaling $15,222.

His  loans are for his studies at Nassau Community College, Farmingdale State College and St. Paul’s Concordia State University in St. Paul, Minnesota. He holds an associate's degree from NCC but still needs to finish courses at the other two colleges.

Ramirez lives with his parents, contributing $550 a month to household expenses. His other bills like car insurance total about $1,000 monthly.

Ramirez said he has made “significant sacrifices” and he doesn’t know where any more cuts in his budget can be made.

“I’ve cut out unnecessary expenses, including streaming platforms, vapes and even reduced my gas expenditure,” he said.

PREWETT: Tyler may benefit from enrolling in the SAVE repayment program. It offers credit toward loan forgiveness and given Tyler's income, his monthly payment would be zero. It's worth noting that Tyler's income may increase as his business grows, which could affect his future payments. Although another income-based repayment plan might be beneficial in the future, for now, the SAVE program offers better benefits.

TAYNE: Tyler seems like an excellent candidate for SAVE. He should be proud of the steps he’s taken to shore up his finances. Not getting his own place yet and cutting out pleasurable expenses can be difficult.

LEAH JACKSON, 29, of Rocky Point, lawyer and hotel front desk agent

Annual income: $85,000

Student loan debt: $258,355.80

Monthly loan payment: $2,933

Monthly rent: $1,700

Other monthly bills: $800

Credit: Debbie Egan-Chin

Leah Jackson is an associate attorney at the Law Offices of Frederick K. Brewington in Hempstead but also works the front desk at a Hilton Hotel to make ends meet. She attended SUNY Suffolk, SUNY Oswego and Touro Law and earned a BS in business administration in 2016 and her law degree in 2020.

Jackson has federal loans totaling $258,355.80.

She is new to the repayment process because she hadn’t started her payments when the reprieve was given. Her monthly payment is estimated to be $2,933. Her combined salary from her two jobs is about $85,000 and her current monthly bills total about $2,500 a month, including $1,700 for rent.

“I have cut out nearly every ‘extra’ expense including gym memberships, trips to Starbucks, eating out … and that’s just to survive daily living here on Long Island,” Jackson said.

PREWETT: Leah's total debt of $250,000 puts her among the top student loan borrowers. If she chooses to pay back her debt under a standard 10-year repayment plan, she would have to pay almost $3,000 a month. However, if she opts for the PAYE  plan, her monthly payment would be around $550, and under the new SAVE plan, it would be $325 per month. Those are both income-based repayment plans, so if Leah's income goes up, her monthly payment would increase. Currently, her repayment plan would be solely based on her income, but if Leah gets married and/or has children, her repayment plan would be adjusted accordingly, including any spousal income.

TAYNE: Leah could likely benefit from using the SAVE plan over the PAYE plan, but if she has any Perkins Loans [made to low-income students] she will need to consolidate them before becoming eligible for SAVE.

Leah is on the right track with her thinking by cutting out unnecessary purchases like dining out. However, since Leah’s budget is so tight, she may want to consider lowering her biggest necessary expense — housing. She could save a lot of money by getting a roommate or two, or moving back in with her parents or other family.

YADIEL CORPORAN, 24, of Medford, sports entertainment account representative

Annual income: $52,000

Federal student loan debt: $10,000

Private student loan debt: $41,750

Monthly loan payments: $300

Monthly bills: $825

Credit: Danielle Silverman

Yadiel Corporan graduated from LIU Post in 2021 after majoring in sports management and minoring in fashion merchandising. His student loans total more than $50,000, including $10,000 in federal loans and $41,750 in private loans. He makes about $52,000 annually and has a total of about $300 in monthly student loan payments  with other expenses of about $825 a month. He lives with his parents and two younger siblings.

“I couldn’t have been happier,” Corporan said of being given a break from paying his federal loans. “I make enough to cover my payment every month but it is inconvenient,” he said. “For the most part I cut out the overspending I was doing once I graduated college,” Corporan said. “Most of that came from shopping for new sneakers or clothes.”

He has continued paying his private loan, but chose to invest the money he was not spending on his federal loan payments "with the plan of making money off of these investments in order to beat the interest rates when I do have to start paying,” Corporan said. He invested in cryptocurrency, bonds, MGM, Disney, Citigroup and Dicks Sporting Goods. "I definitely did well. Over the four years for the rate of return I definitely have money in the bank." 

PREWETT: Yadiel has a mix of loans, which can often lead to debt troubles. It's common for students to take out both federal and private student loans, but only federal loans are eligible for consolidation. I recommend he focus his efforts on paying off his private student loans as soon as possible. If these loans have variable interest rates, Yadiel may see an increase in his monthly payments.
TAYNE: Yadiel should give himself a pat on the back for doing a lot of things right. He saves a lot of money by living at home and he took advantage of the federal payment pause to beef up his investments.

He should likely stay the course with his private student loans; however, if his credit score or income has increased since he initially took out the loans, it may be worth seeing if he could refinance the debt to get a lower interest rate.

While his federal loans represent a relatively small percentage of his overall student debt, switching to the SAVE plan might reduce his monthly payment, freeing up more cash to invest.

LISA HOLLANDER, 60, of Medford, payroll manager

Annual income: $104,000

Student loan debt: $255,000

Monthly student loan payment: $1,340

Other loan/credit card payments: $3,540

Her share of other monthly bills: $1,760

Credit: Newsday/John Paraskevas

Lisa Hollander finds herself stressed about paying back federal student loans again, after having repaid her loans many years ago when she attended college. And the monthly payments on her current loan after earning an MBA in 2014  are expected to skyrocket in October.

Hollander, a divorced mother of two grown sons, owes $255,000, including a Parent PLUS loan she took to fund college for one of her sons.. She said for several years she had been paying $560 a month under an income driven plan, but with the resumption of payments in October that will rise to $1,340.

Hollander said she has had “on and off periods of deferment” when she was laid off and couldn't make payments. Now, she added, “I have a decent job, but there is no way I can afford to pay $1,340 a month."

As a payroll manager for a construction company Hollander makes about $98,000 annually plus a Christmas bonus that last year was $6,000. In addition to her student loan payment, her other monthly expenses of $3,540 include payments on private consumer bank loans, a car loan and about $400 in credit card payments. Hollander shares other monthly bills with her boyfriend, including about $2,060 for their mortgage, taxes and insurance; about $760 for utilities, cable and internet; and $700 for food. 

Hollander said she contacted her loan servicer about the SAVE plan but was told she was not eligible.

PREWETT: Lisa is among the 3.5 million students aged 60 or older who carry the burden of student loan debt. This demographic accounts for roughly 8% of all students grappling with loan obligations, and the debt within this cohort has surged more than 33% since 2017. Much like Lisa, many students in her age group have returned to educational pursuits with the aspiration of higher income potential; and numerous parents, facing their own loan commitments, have acquired additional loans to support their children’s educational endeavors.

Although Lisa isn’t eligible for the SAVE plan because her balance includes a Parent PLUS loan, she should ask her loan servicer about other income-driven repayment plan options that accommodate the inclusion of Parent PLUS loans.

TAYNE: Lisa should address her expenses. She may be able to refinance her personal and auto loans to lower interest rates or consolidate her credit card debt onto a balance transfer credit card with a 0% introductory rate. She should get rid of this debt as soon as possible.

Lisa may also be able to save money on her regular expenses. For instance, she could consider dropping cable, or she should pare down her food bill by doing such things as buying generic foods and buying sale items.

Lisa may also want to start a side hustle to earn more income.