Since March, federal student loans have been put into forbearance through to Sept. 30 under the CARES Act, which has paused interest for borrowers who have been actively making payments. For individuals who have the funds to pay down debt can choose to save or spend their money elsewhere, however, there are some incentives for targeting student loans.
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Here are three ways borrowers benefit from paying their student loans during the coronavirus-related forbearance period, according to a money expert.
Paying Reduces the Principal
“Right now, student loans are at zero percent interest. That means every dollar you pay towards you loan goes to principal, shortening the life of the loan and the total amount repaid,” said Amy Lins, a senior director of learning and development at Money Management International.
To pay student loans as soon as possible, pay more than that standard payment, she said.
“Stimulus money, tax refunds or extra money in your budget: put it all towards paying down or paying off your loans,” Lins said.
Not Paying Can Change Spending Habits
“If you skip your payment when you don’t have a financial need to do so, the temptation is to spend that money on non-essential items,” Lins explained. “Don’t spend your student loan payments on consumables that will be long gone while your student debt remains. Don’t get used to that ‘extra’ cash. It’s not extra. [You can] put it towards paying down your loans.”
Adjusting Payments Can Help
“If you’ve had a reduced household income or increased expenses, don’t wait for October. Go to studentaid.gov now and review your different payment options, including income-driven repayment,” Lins shared as an alternative. “Estimate your new payment amount, apply for a new plan and start paying that amount immediately.”
“This will help you gauge whether your budget is livable with your new payment,” she added. “You can see if you need to make more budget adjustments before the forbearance expires and you are required to start making payments.”