This Smart Savings Move Could Help SAVE Borrowers When Student Loan Payments Resume

If you're currently enrolled in the SAVE student loan repayment plan, you may still have time to prepare -- and potentially earn extra money by putting future student loan payments in a high-yield savings account. 

Since the SAVE plan was struck down by the courts in February, borrowers have been left in limbo waiting to find out when student loan payments will resume -- and how much they'll pay. But you'll have to repay your student loans at some point. Repayment isn't optional, and the government can take action if your loans go into default, including garnishing your wages. 

That's why it's important to work the new bill into your current budget. A high-yield savings account can help. 

I reflected back on what I would've done differently when my student loan payments were paused during the pandemic. Here's what I'd do if I still had more time before repayment kicked in. 

How to prepare for student loan repayment now

Stashing your expected student loan payment in a high-yield savings account can help you in two ways:

1. It can help you build up some savings to put toward your debt when you exit forbearance and payments resume.
2. Setting up a regular deposit can serve as a way to train you to budget for the new expense every month.

It's not clear what the new payment will be for borrowers on SAVE, but you can estimate what your monthly bill will be. If your circumstances haven't drastically changed, you may use your old payment amount before you enrolled in SAVE as a blueprint for how much to save. However, you should take into account any changes in your life over the past five years, like any raises that could push your payment higher. 

If your financial circumstances have changed, or you've never made a student loan payment before, you can try the Department of Education's loan simulator. It can help you explore repayment options and provide estimates of how much you'd pay on different payment plans. 

How a high-yield savings account can help

Having money set aside before student loan payments resume can allow you to make adjustments for things like higher payments or changes to your budget. 

The best high-yield savings accounts can safely store your money while you earn interest on your balance. Let's assume you figured your monthly student loan payment will be $215 per month, and you automatically deposited that amount into a HYSA for six months. Assuming your account has a 3.60% annual percentage yield that doesn't change, you'll have close to $1,300 saved -- including $13 in interest. 

Even if it doesn't seem like you're earning much interest for the amount you're setting aside, remember there's another purpose to saving the money -- getting back in the habit of paying your student loans. 

How to use your savings when student loan payments resume

Before payments resume, it's important to plan what you'll do with the money you've saved. You may take a few routes to feel financially secure while still paying down your balance. Here are a few options. 

• Use the money to slowly ease back into making payments by pulling the full amount due or part of the money from your HYSA monthly. 
• Make a lump sum payment toward your principal balance or tackle the higher-interest loans first. 
• Continue to save what you can in your HYSA, even if it's not as much as before. You can start building an emergency fund, which can help you cover your student loans or other bills if your financial situation changes.