Financial Planning, Millennials

Student Loan Forbearance Extended (Again) What should You Do?

I promised my readers that I would keep you up to date with changes that occur around student loans — so after last week, a new blog post is needed. On August 6th, the Biden Administration extended student loan forbearance through January 31, 2022. This is huge for everyone who has federal student loans outstanding. For those that aren’t sure, this means that there will be no interest accruing on your federal student loans through January 31 (just like it has been for the last while). This is said to be the last time student loans are pushed back, but you never really know at this point.

What Are Your Options With Student Loans? 

You have the option to either not pay your student loans while no interest accrues or you can take advantage of the 0% interest and pay towards them if you want to. It is totally up to you and what you think is best for your situation. 

A few months ago I wrote a post about whether you should or should not pay on your student loans that you can check out here — in my opinion, this still holds completely true. There are some cases where it could make sense to pay down these loans when they are at 0% and then there are some cases where not paying would make sense. Let’s take a look into what may make sense for you. 

Who Should Defer Paying Until February 1, 2022?

If you are someone who is going for PSLF or another loan forgiveness program where you hit that goal after a certain number of payments, it may make sense for you to not pay towards your loans for now. If you choose to not pay, each month still counts towards your total number of payments needed, so paying would not be very beneficial (read this article to make sure you are doing everything needed to ensure these payments count).

Additionally, if there are other areas of your finances that need attention, waiting to make payments may also make sense. Some of those areas are:

  • If you don’t have a fully-funded emergency fund 
  • If you have private high-interest student loans 
  • If you have high-interest debt at all (credit card debt, private loans) 

If any of those areas need improvement then you may want to focus on them while student loans are paused. Also, if you have other important areas to save for like a car, down payment of a house, wedding, etc. it may make sense to focus on them until your loans start back up. I urge you to not waste this opportunity you have. 

If I think I Should Pay Towards Them, What Are My Options? 

If you are someone that has checked all the boxes above, has no high-interest debt, and has your emergency fund fully funded, then it may make sense for you to start focusing on your federal student loans. But, you don’t have to directly pay them down right now. You could save for these student loans but not actually pay towards them until forbearance ends. Let’s say your monthly payment is $500 a month, you could save that $500 a month into a high yield savings account until February, then put all $3,000 down at one time once forbearance ends. This way doesn’t set you back on getting ahead of the loans, but also if something were to happen to you, you would be able to use that money since it is still in your possession. It could serve as a backup emergency fund for a few months just in case you lost your job, had a major expense come up, etc.

What Strategy Is Best For Me?

It’s hard to say what is best for you. Personal finance is so personal that it depends on who the person is. If you are a bad spender and know you wouldn’t save the money till February, then you should probably just pay towards the loans now. If you are a good spender, then you could save the money to give you the added flexibility.

Most of the time people read my blog posts and ask me “What would you do?” So here’s what I would do. For myself and my financial plan, I try to make decisions that maximize flexibility and the options I have– so I personally would automate and save those dollars in a high yield savings account and then put the whole balance down in February once the interest starts back up. You never know what could happen between now and then and having the extra cash would make me feel better so I would choose that route knowing it would relieve anxiety for me (also I want to note I have no high-interest debt and have a strong emergency fund, if I didn’t, then I would prioritize those two things first).

Hopefully, you can use this extension to your advantage!

Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimer page.

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