For the millions of Americans with outstanding student loans, the CARES (Coronavirus Aid, Relief, and Economic Security) Act offered a temporary reprieve from payments for the better part of 2020. Under the President’s direction, the Education Department froze interest on Federal student loans while automatically pausing payments. This pause was later extended to September 2021.
In an economy hard-hit by the pandemic, this offers much-needed financial breathing room. It caters to borrowers’ needs who are dealing with reduced incomes, unemployment, and health concerns. With the extra money available to borrowers, new questions arise. Which are the best budgeting tips to prioritize the funds? Should you keep paying the student loans now that there’s no interest?
What are the Implications?
- The pause is not loan forgiveness. The debt balance will still be there come September, right where it was before the forbearance.
- Federal loans that qualify for the forbearance must be ED-owned—including defaulted/non-defaulted direct loans, defaulted/non-defaulted Federal Perkins Loans, defaulted/non-defaulted FFEL Program loans, and defaulted HEAL loans. It does not apply to private student loans.
- The interest waiver and payment pause are applied automatically. Borrowers looking to make payments on their student loans have to be proactive.
- The forbearance period still counts towards the 120-day payment milestones for borrowers enrolled in public service loan forgiveness programs.
Should You Continue Making Payments (Or Not)?
Many borrowers are in a comfortable limbo, unsure of how to respond to the opportunity presented by the CARES Act. While diverting the ‘freed up’ cash for personal use may seem like the obvious course of action, it’s not necessarily the case. Here are some budgeting tips to guide borrowers on the best way forward:
- Those struggling with essentials (i.e., food or rent) due to the effects of COVID-19 on the economy should use the funds to make their lives easier.
- People living on the financial edge (i.e., paycheck to paycheck) should take this as an opportunity to create an emergency reserve for rainy days.
- If your financial setup allows, this might be an ideal time to pay down the debt faster by taking advantage of the interest waiver.
Cash Fast Loan Centers
All in all, it depends on your current financial circumstances and what you can work in at the moment—but try to pay whatever you can. For more budgeting tips and financial help, reach out to a Cash Fast Loan Center near you.