Student loan repayments can be a burden on many with limited budgets and other responsibilities. The news often features stories about the possibility of student loan relief, but what are the latest developments? Here's what you should know about President Biden's pause on student loans before you plan out next month's payment.
What is the Biden student loan pause?
The U.S. Department of Education, under the direction of President Biden, announced that it would be extending federal student loan repayment relief measures that were originally granted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The relief, which has been extended two times already under the Trump administration, was set to expire on December 31, 2020, but the current administration has extended the plan until early 2022.
What was covered under the pause?
While private loans are under their own set of rules and may not have been affected by the relief plan, during the pause, those with federal student loans could have expected:
- No interest accrual (on existing loans during the pause)
- No payment requirements during the pause
- No defaulted loans collected
However, your loan servicing account dashboard should have had instructions for how to claim the benefits of the pause, allowing you to stop making payments during this period without penalties or fees.
Your unique financial situation, goals, and resources will determine your approach. Here are some student loan repayment tips:
- If you can afford to make payments, continuing to do so will help you pay down the full balance much faster than if you paused payments during this time. You'll also potentially pay less overall interest on your loans since the payments will be applied to interest first and then the principle.
- If you can't afford to make full payments but want to tackle that debt, contact your loan servicer to discuss alternative options that may be available. Let them know your financial situation and that you are having trouble making payments but that you still want to put money toward the debt.
- If you can't afford any payments, and qualify for the loan pause, explore any opportunities to pay towards more expensive debt (like credit card debt with high interest rates). You'll want to talk to your loan advisor and plan ahead for when the forbearance period ends, but some are finding that the 0% interest on federal loans is helping them pay down more expensive debt faster.
Another idea? Many people are using this time to build up an emergency fund and are putting the loan payment money toward creating a safety net to be better prepared for the possibility of future financial volatility. Make sure you receive advisement from a qualified professional before making any big financial decisions.
A word on private loans
The student loan repayment relief doesn't apply to private loans, which are still subject to the policies of those loan issuers and may not allow for any deviation from your loan repayment plan. If you find yourself in a tight situation without the ability to keep up on your payments, contact your issuer as soon as you can. Interest on these loans can be higher than federal loans, which means every month you avoid payment, you could be racking up late fees, penalty fees, and higher interest owed.
If you haven't been negatively affected by the economy, and you can afford to pay down your private loans faster, you might look into how you can use the federal student loan pause to put more toward your private loans. The savings on fees and interest could be substantial.
The bottom line
Many people have struggled to make ends meet during the pandemic, and this break from student loan payments can be enough of a help to get them through. If you need the time to get caught up on bills or get yourself in a better financial situation, taking advantage of the relief extension might be a good option for you. However, if you haven't been affected much, consider if staying on your repayment path is best.
While you could choose to use that money for higher-interest debt or to build an emergency fund, some borrowers are using the relief extension to help them pay off student loan debt faster and possibly putting the financial burden in the past for good.