Introducing a Clever Strategy to Ease Student Loan Repayments According to personal finance expert Michela Allocca, there’s a clever hack that can make paying off your student loans a lot easier. Allocca, renowned for her guidance on finances for young professionals, shared a video revealing how you can prepare for debt repayment by consistently saving money in a high-yield savings account every month. This advice is especially relevant as student loan repayments are set to resume after a pause of over three years, and President Biden’s student loan forgiveness plan was recently struck down by the Supreme Court.
The Department of Education has announced that interest will begin accruing on September 1, and borrowers will need to start making payments on federal student debt again in October. Reports from Wells Fargo estimate the average monthly payment to range between $210 and $314.
Allocca, who has over 807,000 followers on her TikTok channel Break Your Budget, explained how Americans can prepare for the resumption of repayments or recent graduates can be ready to make their first payments. She advises, “First, determine your minimum payment amount. Then, set aside the same sum of money as your minimum payment into a high-yield savings account every month.” Allocca also suggests integrating this practice into your monthly budget to make it a habit. With this strategy, when your payments begin, not only will you already have a substantial amount saved up, but you’ll also be accustomed to making the payments, making the transition exceptionally smooth.
In other financial news, the Federal Reserve recently raised interest rates to a range between 5.25 and 5.5 percent, the highest seen since early 2001. This has fueled the battle for attractive savings rates, with non-traditional banks offering high-yield accounts to customers. Fintech company One, backed by Walmart, recently increased its savings rate to 5 percent, over 12 times the average offered by traditional providers. Apple also entered the competition earlier this year with a competitive rate of 4.15 percent, aiming to draw customers away from major institutions. Mainstream banks typically offer a paltry yield of 0.4 percent, as reported by the Federal Deposit Insurance Corporation.
Lastly, the Supreme Court’s ruling dealt a blow to President Biden’s student loan forgiveness plan, affecting 16 million people who had already been approved for relief. The administration’s program aimed to eliminate over $400 million in student debt, but the justices ruled 6-3 that it overstepped its authority. Despite the setback, Biden has vowed to provide alternative support and recently announced that more than 804,000 federal student loan borrowers will have their debts forgiven. However, this forgiveness will only apply to those who have made payments for a period of 20 to 25 years and is part of a plan to rectify inaccuracies in payment counts for borrowers in income-driven repayment plans. These plans have faced criticism over the years due to communication issues between the Education Department, loan servicers, and borrowers.
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