Student loan debt is an enormous burden that typically takes at least 10 years to repay. There is over $1.5 trillion in student loan debt in the United States, making student loan debt the second largest consumer debt there is, only beaten out by mortgage loans.
Nearly 45 million people in the United States have student loans. While there is a debate about whether college should be free and all student debt forgiven, the reality is many people take out thousands of dollars a year to pay for higher education.
Even with the Biden administration's changes to the Public Service Loan Forgiveness (PSLF) program, which was announced on October 4, many newer borrowers will not be able to have their loans forgiven.
With the new changes, borrowers will be able to get payments counted towards student loan forgiveness that would otherwise have been rejected due to strict PSLF eligibility criteria. However, the total number of payments that need to be made to qualify remains at 120.
Fortunately, since the start of the pandemic there has been Covid-19 relief for federal student loan borrowers, making this an opportune time for borrowers to reduce their principal balance.
All federal student loans have had a 0% interest rate and payments have been suspended, including those in default.
Lowering your student loan balance will save money over time because the interest rate will be calculated off of a smaller number. Everyone wants to save money and the more you can reduce your principal balance during this period, the more money you’ll save over time.
Whether or not you should make payments on your student loans during this period depends on several factors.
- What type of loan do you have?
- What payment plan were you on before the pandemic?
- What is your current employment status?
- What other debts do you have?
The CARES Act--the $2 trillion stimulus package that provides financial support to Americans during the pandemic--provides multiple benefits to federal student loan borrowers, but not private loans.
Someone in a position where it would be in their best interest to make payments during this period is someone who has federal student loans, was on a standard repayment plan, is employed and doesn’t owe any high-interest loans or credit card debt.
There are many instances where paying doesn’t make sense such as if you are unemployed, plan on using PSLF, have high-interest loans or credit card debt, or have private loans.
Using a student loan payoff calculator can help compare the difference between how much you will end up paying back with your current interest rate and principal balance, versus how much you could pay back if you make payments directly toward your principal balance with 0% interest.
After Jan. 31, 2022 everyone will still owe their outstanding principal balance plus the interest that will start accruing again. Your student loan balance is not going away.
The latest update regarding this pause on student loans came on August 6, when Covid-19 emergency relief measures were extended to Jan. 31, 2022--the fourth and final extension since March 2020.
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