4 things student loan borrowers should know about the extended payment break
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Good news this holiday season for student loan borrowers is that they will have three more months before they have to start making payments again.
The payment break, which has been in effect since March 2020, was due to expire on January 31, but the Biden administration has announced it is extending the relief until May 1.
The stock of student loans in the United States has exceeded $ 1.7 trillion and weighs more on Americans than credit card and car debt. About a third of borrowers are in default or in default. The average monthly payment is around $ 400 per month.
A recent survey of student loan borrowers found that even among those who are currently fully employed, 89% are still not financially secure enough to resume payments.
âWe know that millions of student loan borrowers are still facing the impacts of the pandemic and need more time to resume payments,â President Joe Biden said in a statement last week.
Here is what you need to know.
During the payment hiatus, the government suspended enforcement activities against defaulting student loan borrowers.
This means that those who are behind on their payments will be protected until May against foreclosures on their wages, tax refunds and social security checks.
Borrowers who can afford it may want to take advantage of the temporary interest suspension to repay the principal of their student loan debt.
But there are exceptions.
This is because the months of the payment break count towards the eventual debt forgiveness these programs lead to – whether or not you pay, and so any money you put into your loans during that forgiveness only reduces the amount. the discount for which you will eventually be entitled.
4. Until then …
the The Covid pandemic has taught us how important it is to have a healthy savings account to fall back on. People should try to rack up at least six months of spending in cash, experts say. To get the best return on your money, keep it in a high-yield savings account, experts say.
With the interest rates on most federal student loans at zero, this may also be a good time to move forward on paying off more expensive debt. The average credit card interest rate is currently over 16%.
However, make sure you have enough in your emergency savings account before you pay off credit card debt, said Ted rossman, Industry Analyst at Creditcards.com.
This is because your credit limit shouldn’t be viewed as a safety net.
âA lot of people have seen their credit card limits unexpectedly reduced over the past year, with lenders particularly concerned about the risk,â Rossman said.