Thanks to the U.S. Department of Education, the millions of Americans with student debt are not required to make payments until October 2020 due to the COVID-19 pandemic. However, this is leaving many wondering if they should be making payments regardless. Like many financial situations, there is not a ‘one size fits all’ answer. First and foremost, it’s important to understand what the CARES Act means for your student loans and then you can make an educated decision based on your current situation.
The CARES Act is allowing federal student loan payers a 6-month forbearance period from March 13th to September 30th, 2020. During this time, the loans will not accrue any interest. How do you know if your loan is eligible for forbearance? This allowance applies to all direct federal loans and includes most Parent Plus loans as well. If your loan is federal, the lender listed will be the U.S. Department of Education. If you’re still unsure, you can log into the Federal Student Aid website to learn your loan type and lender. You can also log into your student loan provider and check for any notifications regarding their current payment policies as some private lenders may be more lenient during this time. If you do have a qualifying loan, you do not have to apply for forbearance and your payments will stop automatically.
Time to dig in a little bit deeper. Remember, your student loan balance will still be the same on October 1st. The money that you normally would have owed over the six-month period did not disappear and will still be due. If you are out of work and your emergency fund or savings account will only last you so long, then of course you should give your wallet a break while you can. If you’re still employed and paying all of your bills without any stress, then take advantage of the 0% interest and make any sort of payment that you can. Whether you decide to use your stimulus check to pay down a good portion of your student loan or you feel comfortable with paying $50 a month, every dollar will go towards the loan principal. Being able to make payments without any interest will allow you to pay off your loan sooner than anticipated and will result in you paying interest on a smaller amount when your normal payments do resume.
This being said, if you are still employed but are nervous about the future of your position, take this time to pay down higher interest debt (credit card, car payments, etc.) and build up your emergency fund. Safe to say we have all realized the importance of having one by now.
If you still have questions regarding your student loans or want to chat about other ways to put your money to work, contact us here: www.pinnacleprivatewealth.com/contact - we’re always here to help!