A Long Deadline From Paying A Student Loan Bill Without Penalty? What could top that?
Last month, the Biden administration announced that the coronavirus pandemic relief originally enacted in March 2020 under the CARES Act will be extended, giving most federal student loan borrowers additional breathing space to pay bills through September 30, 2021 .
This is great news for millions of borrowers. One less bill in challenging times can mean real financial relief. However, if you’ve been lucky enough to have a steady income during this crisis, there are real benefits to continuing to make payments and staying ahead of the competition once student loan payments are required again.
With the federal government’s continued forbearance, payments and accrual of interest on most federal student loans will be automatically suspended, as will collection activities for defaulted federal student loans. But this breather is only a temporary hold, not a waiver of credit. Your debt will be waiting for you when repayments resume in October, unless the deferral is extended again.
If you’re between jobs or on short-time work, the extra money that comes from not paying student loans is helpful for rent, utilities, or grocery bills. Even if your salary isn’t affected, a forbearance could help you build an emergency fund or pay another, more pressing debt.
Find the best student loans for you
According to a Federal Reserve study, the average monthly student loan payment in 2016 was $393, according to the latest available data. The current eight-month grace period would potentially net someone with that monthly state student loan payment a total of $3,144 to apply for other debt or to build a nest egg.
However, there are five benefits to continuing to pay your federal student loans during this time.
Pay off your student loan faster
If you make payments while your student loan is not earning interest, the principal will be depleted. Your full payment will count towards the principal of your loan after any interest accrued prior to March 13, 2020 – plus any fees e.g. B. for defaulted loans – were paid. This means your balance can go down much faster with each payment.
Reduction of the total interest
A lower principal balance lowers the interest you pay over the long term. Since interest rates have been reduced to 0% during the COVID-19 relief period, your total loan payment can reduce your loan balance immediately. This means that payments applied directly to principal also reduce the amount of interest accrued over time.
improving your credit rating
Less debt, even student loan debt, translates to improved credit history and scores. A healthy credit score ultimately means lower borrowing costs if you’re considering a car loan or mortgage in the near future.
Lower your debt totals for overall financial health
By lowering your capital, you also reduce your overall student loan debt, leading to improved overall financial health and less stress.
Paying just a little more than your required monthly payment amount during this interest-free period can significantly reduce the costs you have to pay over the life of your student loan, pay off that debt faster, and improve your ability to reach new goals.
There are also ways to speed up repayment by paying interest while you’re still in college and paying extra if possible. Just check how your additional payments will be applied before you start.
Practice smart budget management
Continuing to make those monthly student loan payments even when you don’t have and couldn’t have any extra cash on hand will bring discipline and direct cash flow toward greater financial goals. It will also make it easier for you to continue these practices when COVID-19 relief ends and to maintain healthy financial habits.
The answer to the “to pay or not to pay” question during this forbearance period is a consideration of what works best for you. Using this time to significantly reduce your student loan debt can give you a head start in the long run.