Good news, student loan borrowers: President Trump signed an executive order that extends the hold on federal student loan payments until January 2021. Student loan payments were initially paused under the CARES Act until the end of September.
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While the Department of Education worried about student loan defaults and delinquencies (due to high unemployment), Trump extended student loan forbearance. As a result, roughly 35 million students get a break from paying federal student loans until the end of the year.
All that extra cash can really help, especially if you're struggling with other debt. And, while going on a spending spree may sound fun now, you may regret it in the long run. You can explore all of your student loan options by visiting online marketplace Credible today.
Here are a few other (better) ways you can spend the extra money:
- Pay down credit card debt
- Pay down personal loan debt
- Pay down your mortgage
- Pay student loans anyway
1. Pay down credit card debt
The Federal Reserve reports the typical monthly student loan payment is between $200 and $299. The average credit card balance among people in their 20s was nearly $2,800 in 2019 according to Experian data.
So, if you saved $250 each month from September through December 2020, and put that money toward paying down your credit card balances, you would be $1,000 less in debt. Of course, this only works if you don’t make additional purchases on your cards.
2. Pay down personal loan debt
Paying down personal loan debt can take time. But the money you will save by delaying payments on your student loans just might be the motivation you need to get started.
If you're paying a higher interest rate on your personal loan, you may want to consider refinancing as interest rates are at an all-time low. Visit an online marketplace like Credible to explore your personal loan options.
Nishank Khanna, chief financial officer at Clarify Capital, says, “Using extra cash to make payments during this interest-free period can help you get ahead and save money over the life of your loan. Payments as low as $50 a month can make a huge difference because every dollar applied is going straight towards the principle.”
Keep in mind that paying off your personal loan early may cost you. Some lenders charge prepayment penalty fees, so you’ll want to balance the pros and cons to repaying your loan before it matures.
3. Pay down your mortgage
Using cash reserves to pay down your mortgage can free up cash flow each month. By making more aggressive payments on your mortgage–like an extra $100 each month–you’ll also own your property outright much sooner.
You’ll lose the mortgage interest tax deduction. And, although you’ll still have equity in your home once you pay off your mortgage, you’ll have no available cash on hand.
According to Freddie Mac, mortgage rates have sunk to their lowest level in many years, so you may want to consider refinancing your current mortgage.
Finding the best mortgage refinance rates takes time. You'll need to compare rates from multiple lenders. Credible allows you to compare multiple lenders to ensure you meet your personal finance goals. Find out how much you could save on your loan amount by refinancing now.
Use an online mortgage calculator to determine your potential monthly payments.
4. Pay student loans anyway
“Overall, students have a unique opportunity to pay down their student debt faster if they choose to make payments during the student loan suspension period,” says Kalicia Bateman, student loan and student debt expert at BestCompany.
But make no mistake, loan forbearance is not loan forgiveness and this is only a pause due to the coronavirus pandemic. If you can't make your payments or choose not to, your debt will be waiting for you when federal student loan suspension ends. If you continue to make payments on your student loans during forbearance, you won’t pay any new interest. Your payment won’t be any lower, but the 0% interest rate will save you money.
Even during this student loan forbearance period, it's still important to know your student loans' interest rate and terms. Use an online student loan calculator to determine your costs.
What you do with the extra cash you save during the pause in paying your student loans can positively or negatively impact your finances. It’s all up to you. You can pay down a credit card or personal loan debt, pay more every month on your mortgage, or continue to make your student loan payments during forbearance.
No matter what you do, consider all the pros and cons and explore all of your student loan options by visiting Credible today.