For borrowers of federal student loans, the last few years have been special. We still don’t know the exact day the bills will start after being suspended for nearly three years.
In August, the President Joe Biden said he would forgive until $20,000 debt for millions of borrowers. However, the plan was temporarily halted in federal court, and until the Supreme Court renders its final verdict on the program, the public will not know whether it will receive the promised aid.
Experts say borrowers can still make prudent financial decisions in the meantime.
Make the most of any extra income
In light of recent news warning of a potential recession and increased layoffs, experts advise trying to to save money you would typically pay monthly for your student debt.
It’s worth looking for the best deal, as some banks and online savings accounts have increased their interest rates. Just make sure that any account you deposit your funds into is FDIC insured, which will protect your deposit for up to $250,000 of the loss.
Plus, experts suggest that even if interest rates on federal student loans are zero, now is a good time to keep paying off more expensive debt. Currently, credit card interest prices are above 19% on average.
Remember to make payments
It may be wise to continue to repay your student loans even during the break if you have a large emergency fund and no credit card debt.
There is, however, an important caveat. You don’t want to keep repaying your loan if you participate in a public service loan forgiveness program or an income-based repayment plan.
Since these programs both result in forgiveness after a certain period of time, any money you invest in your loans during the government payment break only reduces the amount you will end up getting forgiven. This is because months during the payment pause still count as eligible payments for these programs.
Assess your alternatives for restarting payments
Even if the the start date for federal student loan bills is not yet setyou should be ready for it whenever it happens.
One of the calculators of studentaid.gov or Freestudentloanaadvice.org will allow you to compare the amount of your monthly expenses under various repayment options.
Consider applying for an unemployment or economic hardship deferral if you are unemployed or experiencing other financial difficulty. Due to the fact that the interest is not accrued, these are the best methods to delay your federal student loan payments.
However, if you are not eligible for either, you can continue to delay your payments with forbearance. Remember that if you forgo payments, interest will accrue and your balance will likely be higher when you start making payments again.
Check if refinancing could help
As the Biden administration considered how to proceed with pardons, student loan holders should not refinance its debt with a private lender. Student loans that have been refinanced are not eligible for federal aid.
Borrowers may want to consider this alternative now that they know the amount of debt cancellation available, if the president’s program is backed by the Supreme Court. You are more likely to get a lower rate from a lender now than later because the Federal Reserve should continue to raise interest rates.