This past weekend, President Trump signed into action an executive order to continue the deferment of federal student loan payments until 2021. So…what does this really mean?
Below, we’ve outlined several of the key takeaways to know as well as some helpful options to consider if you’re impacted by this news:
What exactly does this new “deferment” policy mean?
Here are the key details to know:
- No payments are required for federal student loans until January 1, 2021
- Interest will be suspended through January 1, 2021
- Any pause in payments will not count towards the Public Student Loan Forgiveness requirements (you will still need to make the designated number of payments to be eligible for this program).
- Those with federal student loans can continue to make payments during this period if they so choose
- Those with private student loans are not impacted by this change.
Note* if you’re struggling to make ends meet or are having a difficult time making your private student loan payments, consider contacting your loan provider to see what options you may have (rather than simply default on your loan entirely).
What options should you consider during this time?
Take advantage of the zero interest period and make payments towards the principal balance
If you have an emergency fund, no credit card debt, and steady income, it may make sense for you to continue making your student loan payments during this deferment period. This way, any payment you make will go directly towards the principal balance of your loan which will save you interest over time.
Pay down other high-interest debts
Paying interest is a very quick way to deplete your savings and makes little use of the money you’ve worked so hard to earn. Take advantage of this temporary break in student loan payments and use the money you would have allocated for those debts and instead, shift them towards your credit card or other high-interest debt. Since credit cards can charge anywhere from 16-28% in interest, it is worth your while to prioritize paying these balances now so as to save yourself interest expenses later on.
Bulk up your emergency reserves
Most experts recommend saving anywhere from 3 to 6 months of your income to use in case of an emergency. Given the extreme volatility and unpredictability of the last several months, it has perhaps never been more important to keep this type of emergency fund handy. If you don’t currently have money saved for this purpose, apply your student loan payments towards building or establishing an emergency fund instead. This way, you will have some money to fall back on if times continue to be tough or if you find yourself in need of assistance due to a financial hardship.
Leave a Reply