Why it’s a good idea to keep paying through the student loan payment pause

With 0% interest on federal student loans also extended to the end of 2022, borrowers can pay down their loan balances interest-free

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Continuing to make student loan payments through the payment pause could have financial advantages.

You might have breathed a sigh of relief yesterday with the announcement that the pause on federal student loan payments has been extended to the end of the year. But if your finances allow you to continue making payments, it’s worth considering paying toward your student loan balance every month, despite the payment pause.

Here’s a look at the substantial advantages of continuing to pay your student loans during the payment freeze. 

The payment pause doesn't apply to private student loans, so you may need to find another way to reduce the costs of those loans. Refinancing to a lower rate could help. With Credible, you can easily compare student loan refinance rates from multiple lenders.

A ‘final’ extension

On Wednesday, Aug. 24, President Biden announced a seventh — and "final" — extension of the payment pause first introduced by the CARES Act in March 2020. 

The pause allows people with federal Direct student loans to forego payments through Dec. 31, 2022. It also leaves the interest rate on those loans at 0%, so that borrowers won’t be hit with back interest — or worse, capitalized interest — when the pause ends.

On Jan. 1, 2023, you’ll be required to resume payments on your federal student loans, likely at the same interest rate you had before the pause began. Loan servicers will start sending billing statements and other notices to borrowers — although they’re supposed to give you at least 21 days notice before your first payment is due.

Why you might want to make student loan payments

That 0% interest rate that protects you from accrued interest can also work to even greater advantage. Every penny you pay toward your federal student loans during the payment pause goes directly to paying down the principal of your loan. The more you reduce the principal, the faster you’ll be able to pay off your student loan.

Here’s an example of how 0% interest could work to your advantage, even if it’s just for a few more months:

Let’s say you have a $5,000 Federal Direct PLUS Loan that you took out for the 2019-2020 academic year, when the interest rate was 7.08%. You were supposed to begin repaying it in June 2020 on the standard 10-year repayment plan. If not for the payment pause, your monthly payment would have been $58, and your total interest cost over the life of the loan would be $1,991.

Now let’s say you kept paying that $58, even though you didn’t have to, and all of it went toward your principal. By the time the payment pause ends on Dec. 31, 2022, you would have reduced your loan balance by $1,798. That means when you start repaying your loan on Jan. 1, 2023, your balance would be $3,202. Your new monthly payment would be just $37, and you would have shaved $716 off your total interest costs.

Paying down your student loan debt can pay off in multiple ways:

  • You could lower your debt-to-income ratio, which can improve your credit score.
  • You could find yourself with extra money to put toward other financial goals like saving for a house, building your emergency fund, or saving for retirement.
  • You could avoid, or at least minimize, the impact of long-term debt.

Refinancing can be another way to reduce the cost of student loans and pay them off faster. Credible makes it easy to compare student loan refinance rates from multiple lenders without affecting your credit.

How to restart payments if you’ve paused them

First, log into your federal student aid account at Studentaid.gov to get contact information for your loan servicer. You should also get an idea of what your normal monthly payment would be, without the pause, so you can decide if you want to send that amount, or more or less. (Keep in mind the more you send the faster you’ll pay down your student loan balance.)

Contact your servicer and let them know you’ll be making payments that should apply toward your loan principal. Check with them to make sure you’ll be able to continue with autopay, or enroll in it if you haven’t yet. Remember, autopay gets you a 0.25% discount off Direct Loan interest rates.

Will the payment pause be extended again?

Technically, anything is possible, but Wednesday’s student loan forgiveness and payment pause extension make it seem unlikely the federal government will extend the pause again.

The payment pause has been extended seven times since March 2020. With this latest extension, borrowers get an extra four months to prepare for when payments resume in January 2023.

How to pay off student loans fast

Continuing to pay on your federal student loans during the payment pause is one way to pay off your student loans faster. Here are some other strategies to consider when paying down both federal and private student loans:

  • Check with your employer on student loan assistance. Some companies have begun offering repayment help as part of employee benefits packages.
  • Make extra payments whenever possible. Once required payments resume, paying extra as often as possible will help reduce your loan balance faster.
  • Consider refinancing. Refinancing can allow you to consolidate multiple loans into one, potentially at a money-saving lower interest rate. If you’re also able to refinance into a shorter repayment term, you’ll get out of student loan debt even sooner. Just keep in mind that refinancing federal student loans with a private student loan means you’ll lose benefits like income-driven repayment plans and access to student loan forgiveness.

Before moving forward with refinancing, it's a good idea to compare student loan refinance rates from multiple lenders. Credible makes it easy to see your prequalified rates in minutes.