Key takeaways 

• 1 in 3 households expect their federal student loan payments to total at least $1,000 each month when payments resume in October. 
• Americans are considering ways to save, including cutting back on discretionary spending (59%) and taking on credit card debt (32%)
• Almost 1 in 4 adults with student loans (18%) wish they invested the money to grow it in the market instead of taking on debt and had done more research before signing the note (23%). 

Anyone who’s had a hefty expense removed from their budget can attest to the challenge of squeezing it back in to their monthly cash flow. It can sting, and it requires tradeoffs. Such is the reality now faced by the 43.8 million federal student loan borrowers¹ whose debt has been put on in forbearance since early 2020 as part of pandemic-relief measures. 

With payments resuming in October, new Empower research* reveals that 1 in 3 households expect upcoming student loan payments of $1,000 per month. During the forbearance, 31% of borrowers didn’t make any payments, and many say they reallocated their debt payments to debt paydown and emergency savings. 

Cutting back to keep up 

With the upcoming expense, borrowers are considering new ways to save: 

• More than a third of Millennials (38%) and nearly half of Gen Z (49%) say they are likely to consider moving in with roommates. 
• 37% of Gen Z say they may trade in their car. 
• 1 in 5 of Americans say they are very likely to consider finding a second job.  
• 45% of Millennials and 47% of Gen Z say they may relocate to a more affordable area, compared to 39% of the population as a whole. 
• A quarter of Americans (26%) say they are very likely to delay buying a home once payments resume, including 30% of Millennials, 24% of Gen Z and 23% of Gen X.  
• 32% of Americans say they plan to take on more credit card debt. They also plan to cut back on discretionary spending (59%), dining out (59%), and are planning to cancel upcoming trips and vacations (41%). 

Overall, borrowers don't regret attending college, with only 14% saying they wouldn’t go if they could do it all over.  

Still, some would make a few changes: Almost 1 in 4 adults with student loans (18%) wish they invested the money to grow it in the market instead of taking on debt and had done more research before signing the note (23%). This is understandable. Having a clear understanding of your loans, their purpose and goals, and alternatives can help you make informed decisions for your future. 

Preparing for payments 

With payments resuming in only a few months, many borrowers are beginning to feel the stress of managing the additional expense. If you’re among that group, you have resources to help you along the way. 

1. Review repayment plans & alternatives 

Student loans can be difficult to navigate, so now is the time to get familiar with income-based repayment plans and other loan forgiveness plans. Check out the options available at studentaid.gov. For example, the recently announced Saving on a Valuable Education Plan, or SAVE, significantly reduces payments for low-income earners and waives a portion of interest for borrowers on income-based plans.  

You may want to refinance with a private company if you’re able to lower your interest rate for a more manageable monthly payment. Look into plans with the lowest fixed rates, and consider avoiding refinancing into an adjustable rate.

2. Go back to the basics 

If you’re feeling overwhelmed by student loan payments resuming, take a close look at your monthly spending to find places where you may be able to make cuts without impacting your long-term goals. You can use the free Empower Personal Dashboard™² to track your cash flow over time and see which spending categories may be the best contenders for trimming spend. You may need to eat out less or take one less vacation each year. Maybe it’s time to trade in your car for one with a lower payment.  Even small amounts can help add up to cover your monthly payments. 

If you’re not able to meet your fixed expenses with your current income, then you may want to consider ways to generate more income.  

3. Store extra cash in an interest-bearing account 

In the months left before the payment pause, consider stashing disposable income in a high-yield cash account. These accounts have the potential to earn a higher interest rate, such as Empower Personal Cash that currently offers a 4.45% APY.1 Your money has the potential to earn interest until student loan payments are due, when you can send off a lump-sum payment toward your student debt. If needed, you can access this cash at any time. 

4. Work your student loan into your overall debt payoff strategy

Two strategies you can use to pay off your debt are: 

• Snowball method, meaning you pay down the lowest balance first, and then move on to your bigger loan balances. This approach builds momentum and motivation by settling debts faster.
• Avalanche method, in which you pay off the debt with the highest interest rate first, then move on to the next highest rate. With this approach, you pay less interest over time.  

Once you’ve established your new monthly student loan payment, consider targeting the loan with the highest interest rate. Whichever approach you take, be sure to cover at least the minimum monthly payment on all of your loans in order to avoid extra fees. 

5. Weigh debt payoff against other financial goals 

Carrying debt can feel like a weight you may want to shrug off as soon as possible. But if you’re able to invest in a diversified portfolio with an expected annualized return that's greater than the interest rate of your debt, it may make sense to prioritize investing over paying off your debt. 

As you work through options, consider partnering with a financial professional to help you explore your next steps and plan for your big financial goals. 

Millions of U.S. households use the Empower Personal Dashboard to create a budget, analyze their investments, and prepare for retirement. The dashboard’s free money tools bring your accounts together in one place so you can get a clear picture of your path to financial freedom.