Loan interest

What To Do With Your Money With Student Loan Payments Suspended Again

With the federal moratorium on student loans recently extended until May, borrowers are given another stay on their monthly payments.

But for borrowers who were planning to resume their payments over the next three months, that means thousands of dollars can now be used for other things, like topping up an emergency fund or paying off credit card debt at home. high interest.

Since no interest is currently charged on the federal student loan balance, you can choose to collect payments when they resume in May. If that frees up extra money in your current monthly budget, it would be an opportunity to clean up financially, either by increasing your savings or investments, or by tackling other forms of debt.

“It really depends on the borrower’s situation,” says Glenn J. Downing, Chartered Financial Planner (CFP) and founder of CameronDowning. “If there is also high interest debt, it is a good idea to divert student loan payments towards eliminating that debt. If the emergency fund is not topped up, that would be another. excellent use of these student loans now unnecessary repayment dollars. “

Meagan Landdress, a Certified Student Loan Professional at Student Loan Planner, agrees that tackling high interest credit card debt and building enough emergency savings to cover three to six months of expenses should be top priorities.

After that, your third priority should be based on your specific financial goals, which can range from paying off student debt to saving for a down payment on a house or saving for retirement.

“If Covid has taken its toll on your financial life and you need to rebuild yourself a bit, this is your chance to reset your finances,” Landress said.

“The most important step you can take is to adjust your budget now to prepare for your monthly student loan payments,” says Haley L. Tolitsky, CFP at Cooke Capital. “It’s been over a year since you made these payments, so get back into the habit of changing your budget to include the loan payment.”

If you think you can’t afford these student loan repayments when they start again in May, check out this Department of Education webpage which will outline your options, including an income-based repayment plan.

What happens with the forgiveness of federal student loans?

Of course, borrowers can choose to pay off student loan debt during the hiatus, but it’s also possible that the Biden administration will enact more federal student loan cancellations before the payment and interest freeze expires in May. .

In this case, it presents a bit of a dilemma for borrowers: if there is still a chance that the federal student loan debt could be canceled (e.g., $ 10,000, as it is often said), the payments made. during the freeze could be wasted on debt they no longer need to be paid off.

At this point, however, no executive action or legislation is planned to offer a blanket student loan forgiveness, although last spring Biden initiated a review of his legal authority to pay off his debt through of a decree.

Landres thinks general forgiveness “is a bit dead in the water” but concedes that no one really knows for sure. Instead, she thinks it’s more likely that debt relief will be provided through existing federal programs.

Last year, the Education Department announced more than $ 10 billion in canceled loans through expanded qualifications for borrowers who are either in the public service, have a disability, or have been misled by schools. for profit.

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