Student loan repayments are suspended for an additional six months. What you can do
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People with federal student loan debt have about six months more freedom to repay and see interest accumulate on their outstanding balances.
In the meantime, they can use the money they would pay for these work loans.
In August, the US Department of Education extended the moratorium on payment and interest on federal student loans one last time, until January 31, 2022. For millions of borrowers, that means they won’t not have to make another payment before next February.
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“There is a real opportunity for people to build a good foundation now that they have a definitive end date in mind, [and] get their financial and household budgets in order, ”said Robert Humann, director of revenue at Credible.com.
For many Americans, the money they don’t need for loans each month could help them make significant financial progress. The average monthly payment for a student loan is around $ 400, according to Mark Kantrowitz, a higher education expert.
“It’s about understanding what your priorities are and how you can take advantage of the next six months to help you hit the fast forward button on some of those goals,” said Lauryn Williams, Certified Financial Planner and Founder of Is it worth it in Dallas.
Boost your savings
If you don’t have a solid emergency savings fund or had to deplete yours during the coronavirus pandemic, it’s a good idea to use the extra money from non-payment of student loans. to create a backup.
Typically, experts recommend having between three and six months of living expenses set aside in cash. But, after the health crisis, some people may want to save even more.
Reallocating student loan money could help people set aside a large amount of money quickly. For example, if your monthly student loan payment was $ 400 – about the average – and you save everything, you could have $ 2,400 by February.
Pay off other high interest debt
Paying off debt is another great way to improve your financial situation over the next six months, before payments resume.
If you have high interest debt, like credit cards, see if you could pay off the balance or at least make significant headway over the next semester.
“Focus on paying as much as you can,” Humann said. “It can help you minimize the interest you’re going to pay and save more money over time.”
Even if you don’t completely write off debt, any progress will pay off in the long run, according to Humann.
If you have savings that you’re happy with and don’t have to pay off other debts, you may want to consider investing the extra money, according to financial advisor Delano Saporu, CEO and founder of New Street Advisors Group, based in New York.
If you are new to investing, that means opening a brokerage account or potentially a Roth individual retirement account, which has some tax and business advantages. Investing your extra money helps it grow over time and can help you reach your long-term savings goals faster, like having enough money for a down payment on a house, a wedding, or even. to retire.
Even putting a small amount on the market now will help you in the long run, according to Saporu.
“The more money you have compounded, the better,” he said.
Re-evaluate repayment options
While you’re working toward other financial goals, another thing student loan borrowers should do before payments resume in February is review their budget and repayment plan. Things may have changed a lot since the last time you made a payment, especially if you changed jobs due to the pandemic.
“This is a great time to check and make sure the payment strategy you are using is the best for your personal financial situation,” said Williams.
This means considering what your monthly payment will be in February, if you can afford it, and if not, what other repayment options are available. Questions can be directed to an expert such as a financial planner, a professional student loan advisor, or your student loan manager.
Refinance private loans
Many Americans have public and private student loans, which typically require different repayment strategies. While federal loans have been suspended, most private loans have not been suspended.
Still, the time may be right to consider refinancing a private student loan, as interest rates are so low, experts say. Having a lower interest rate on such loans could save you a lot of money over time.
Granted, this does not apply to most people on public student loans, which should not be refinanced at this time.
Indeed, when you refinance a public loan, it becomes private and is therefore no longer eligible for certain programs such as the current payment and interest break. It also means that borrowers cannot sign up for different repayment plans or get certain types of loan forgiveness.
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