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2022 Student Loan Repayment: What You Need to Know to Prepare

Jean Chatzky  |  August 10, 2021

Here's how the perpetual pandemic is impacting our financials for the upcoming months.

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This Week in Your Wallet: Patience, Please.

Have we hit the dog days of summer yet? It’s certainly feeling that way around here. Hot and muggy. Although it could also be my perception because I’m having doggy day dreams. It’s been about 6 months since we lost our beloved Teddy and I’m eagerly awaiting the padding of little puppy feet around here sometime soon. Meanwhile, I am now that annoying woman on the street corner or in the park who wants to know if I can pet your dog. Patience, please. 

Actually, I think we could all use a little bit of that sometimes rare human attribute – particularly as we deal with the seemed-to-be-ending-but-maybe-not-so-much pandemic. 

Just as we were readying to go back to the office, figuring out what we were going to wear, how we were going to get there, if we would be able to cope, the lights are once again flashing yellow. Amazon employees are not heading back until January (at the earliest), CNN has pushed off til October and many others are following suit. When employees do come back, there are a variety of masking policies in motion. As the Wall Street Journal reports, Bank of America is requiring masks in group settings and away from individual desks. Ditto JP Morgan. And executives – like Warby Parker co-CEO Neil Blumenthal, note that timelines are fluid. “We’re back at the same level of uncertainty that we were a year ago,” he told the paper. “This is frustrating, and it’s maddening.” Breathe.

Student Loan Reprieve Redux

The federal student loan payments that were supposed to resume at the end of September have been pushed off until January 30. This will be the last reprieve according to the Department of Education, as Michelle Singletary reports for The Washington Post. What does this mean for holders of federal student loans? 

Highlight February 1 on your calendar. That’s the day payments will resume. Before then, you should be contacted by your loan servicer about what needs to happen in order to restart your payments. If you haven’t heard from them by the holidays, take the initiative and reach out yourself (also, update your profile information at studentaid.gov.) And, if you believe you won’t be able to make payments in full, look into an income-based repayment (IBR) plan that will – as it sounds – tie the amount you’re required to pay each month to your income. At studentaid.gov, you can run a calculator that will give you a look at what your payments under IBR would be.

The Good And Bad News About Saving

If you held onto your job through the pandemic, perhaps got some stimulus dollars and followed the advice about social distancing, chances are pretty good you saved some money. Many people banked thousands. Others paid down high interest rate debt putting them into a better financial state as we turn toward 2022. (More on that in a moment.)

The problem with having those savings is that there is very little you can do with them right now that protects them without actually losing money. In other words, the likelihood of emerging with less than you deposited after inflation is higher than it’s been in a long time. (You can do the math. If you earn .1% interest on your bank savings account and inflation goes up by 4% as it has recently, then you lose 3.9% in purchasing power.) Inflation isn’t expected to stay at these levels for long, but that’s the demoralizing picture The New York Times’ Neil Irwin paints in The Upshot. “The choice for a saver is stark,” he writes. “You can invest in safe assets and accept a high likelihood that you will get back less, in terms of purchasing power, than you put in. Or you can invest in risky assets in which you have a shot at positive returns but also a substantial risk of losing money should market sentiment turn negative.” 

So, what’s a die-hard saver – and I count myself among you – to do? That depends on what the money’s for. If you need it short-term to make a downpayment on a home in two years, pay for college tuition in three, or something else you can see coming around the bend, you could buy a certificate of deposit or put the money in Treasuries. Yes, you’ll still lose purchasing power, but only a little less. If you don’t need the money in the short-term, you could of course invest it – but you could also use some of it to pay down debt. The higher the interest rate, the greater the return on your money. But with inflation nipping at your heels and guaranteed interest rates low, even lower rate debt payoffs – i.e. on your good debts, one of the 6 concepts the WSJ decrees you should know to be financially literate – start to look more attractive. Just a thought.  

And…if you’re already financially literate?

Pssst. It’s time to drop some knowledge on the next generation. Here’s how. Meanwhile, send those puppy pictures my way. I’m a sucker for every single one.

Have a great week!

Jean

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