President Joe Biden (Photo by ANDREW HARNIK/POOL/AFP via Getty Images)
POOL/AFP via Getty Images
Should you stop paying student loans during student loan relief?
Here’s what you need to know.
President Joe Biden surprised just about everyone when he extended the student loan payment pause for another 90 days until May 1, 2022. Student loan relief due to the Covid-19 pandemic has been ongoing since March 2020, when Congress passed temporary student loan forbearance under the Cares Act, the $2.2 trillion stimulus package. Before this latest extension, student loan borrowers would have restarted student loan payments beginning February 1, 2022. Now that federal student loans are paused again, you may be wondering whether you should make student loan payments. Let’s explore. (Student loans might be paused, but here’s why Biden extended student loan relief).
Student loans: you’re not required to make federal student loan payments
Current student loan relief doesn’t require you to make any federal student loan payments. (What Biden’s latest student loan relief means for your student loans). Therefore, between now and May 1, you could decide not to pay your federal student loans. In addition, there is no new interest accrual on your federal student loans and no collection of student loans in default. The benefits of not paying your federal student loan payments may be obvious. For example, you could use the money to pay for living expenses or pay off other high-cost debt. Alternatively, you could save for retirements, invest, or save to buy a home. These are some of the uses that student loan advocates have listed in championing wide-scale student loan cancellation too. (How student loan payments will be easier in 2022).
Student loans: you are required to make private student loan payments
Unlike federal student loans, you are required to make private student loan payments. The Cares Act only applies to federal student loans. If you have private student loans, you should pay monthly as required by your lender or student loan servicer. Unfortunately, there is no direct student loan relief for private loans. (Is student loan debt cancellation next?) That said, if you’re struggling to make private student loan payments, consult your student loan servicer for options on student loan repayment, such as deferment or forbearance.
Consider making optional federal student loan payments
The notion of making optional federal student loan payments may sound counter-intuitive. Why would you make an optional student loan payment when student loan relief doesn’t require you to? (Here’s how to get student loan forgiveness during the Biden administration). The answer is that you can save significant money by making optional student loan payments. Since there is no new interest accural during the period of temporary student loan forbearance, this means that every dollar you pay during this period will directly pay off any existing student loan interest. Once you pay off existing student loan interest, every additional dollar will directly lower your principal student loan balance. (How to qualify for automatic student loan forgiveness). Therefore, this period of student loan relief is a unique opportunity to make additional student loan payments without new interest accrual. With a lower principal balance, this means less interest can accrue, which means you can pay off your student loans faster.
Student loans: next steps
Remember, you’re not required to make federal student loan payments. It’s your decision whether you want to make optional student loan payments. You may not have extra money to pay off student loans now, so it be financially advantageous to use your financial resources for other pursuits. Importantly, student loan relief won’t last forever. Make sure you have a game plan for student loan repayment. Start now to understand all your options. Here are some popular ways to pay off student loans faster: