Extended Student Loan Relief

The 46th President of the Unites States was sworn in yesterday, and President Joe Biden is not wasting any time in getting relief to Americans. One of the flurry of executive orders that have been signed into law is another welcome extension to the federal student loan payment and interest freeze. This means that no payments are required and no interest will accrue on federally-backed student loans until September 30th, 2021.

If you are a student loan holder, this is obviously excellent news. I realize there is a large spectrum of borrowers out there. For some, you may be trying to just scrape by, even with the current deferment on these loans. Or perhaps you’ve been fortunate to keep your job and the loans are one less bill you have to pay, freeing up some of your cash flow each month. Because of the nature of different financial situations, I thought I would offer up a few suggestions that may be of help.

Emergency Savings – If you don’t have something saved up already, this would be a great opportunity to do so. A savings account is a good place to put away this money for a rainy day. If you were ready to start making monthly payments again at the end of January here, and now don’t have to, consider putting part (or all!) of that payment into an account and do that for a few months and watch the savings grow. We are still living in some pretty unprecedented times, and no one can claim to know what the future will hold. Having up to 3-6 months of financial cushion to cover your expenses in the event of a lost job is a great idea.

Hold off on paying the last $10,000 – There is still a lot of talk of talk floating around about some outright student loan forgiveness. While I doubt that ALL loans or $50,000 per borrower will be forgiven, I do think this $10,000 worth of forgiveness per borrower could be a possibility. This doesn’t mean going and spending the money that you would otherwise use to pay off the “last” $10,000 of your loans, but I would probably hold off until closer to September to do so. If you have $30,000 in loans, for example, paying off the first $20,000 would be a pretty safe bet at this point. If you get down to $10,000 left, just throw the money you would be using to make payments into a savings account in case forgiveness doesn’t end up happening.

Pay off high-interest debt (or debt with any interest for that matter) – Right now, these federal loans are costing you nothing. Take advantage of that! If you have a car loan, consider paying that down. If you have credit card debt, vanquish it to the far reaches of the universe. If you have any sort of outstanding debt, get rid of it. The no payments/no interest situation with federal loans is the perfect recipe for making serious progress on any other debt you might have.

Keep making payments on your loans – While continuing to make steady payments on your loans while they are frozen is not a sexy idea, it is prudent. We don’t know what tomorrow will bring. But being a step or two closer to being totally debt free will definitely not hurt you, and I’d be surprised if you ever regretted it! As we’ve already covered, 100% of any payment you make right now is going straight to principle. Payments during this time can shave weeks, months, and even years off of your payoff timeline. If you can do it, strongly consider what it could do for your future self.

In closing today, I would like to remind you as my valued reader that financial responsibility is our responsibility. It is not the job of your employer, your city or state, or the national government. Stimulus checks and loan forbearance are nice, but at the end of the day, your fiscal fitness is up to you. You can do this!