One of President Biden’s first executive directives after he took office was to extend the pause on federal student loan payments until September 30. The suspension is welcome news to borrowers who are experiencing economic hardships, and in some cases it could reduce the amount they owe.
During the moratorium, borrowers are credited for monthly payments for the purposes of loan forgiveness, even though they’re not making the payments. A borrower who was enrolled in the public service forgiveness program when the first moratorium was announced last March will be credited for 19 of the 120 credits required for loan forgiveness by September, according to Savi, a tech company that helps borrowers manage their student loans.
Similarly, borrowers who are participating in an income-driven repayment plan, which provides loan forgiveness at the end of a 20- to 25-year repayment term, will also get repayment credits during the moratorium, says Mark Kantrowitz, a financial aid expert and author of How to Appeal for More College Financial Aid.
For that reason, it doesn’t make sense for borrowers who are enrolled in one of these programs to make payments during the moratorium, “because that just reduces the amount of loan forgiveness you’re eligible to receive,” Kantrowitz says.
If you’re not eligible for loan forgiveness, making payments during the reprieve will go directly to the loan’s principal, which would reduce the amount you owe when payments resume. But before you tell your lender you want to make payments — which you’ll need to do, since the suspension is automatic — consider whether there are better uses for your money. You should first pay off any high-interest debt, such as credit card debt, and have at least enough in an emergency fund to cover half a year’s living expenses.
Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.
The Divorce Gap: Unique Retirement Issues for Women Over 50
The shocking loss of income and retirement savings that disproportionately affect divorced women is a big challenge – especially for those over 50.
By Stacy Francis, CFP®, CDFA®, CES™ • Published
4 Steps for Managing Income Withdrawals in Retirement
Investing for Income How Roth IRA conversions can help you minimize your taxes in retirement, extending the life of your savings.
By Kyle Hammerschmidt, Investment Adviser • Published
What You Need to Know About Life Insurance Settlements
life insurance If your life insurance payments don’t seem worth it anymore, consider these options for keeping the value.
By David Rodeck • Published
The Best Travel Rewards Credit Cards
credit cards Business road warriors and leisure travelers alike can use a travel reward card to turn miles logged into other things – including more travel.
By Lisa Gerstner • Published
What Is an APR?
credit & debt Even for those who pay off their credit card balances every month, knowing your APR is part of keeping good credit habits.
By Rivan V. Stinson • Published
How Big Will the Fed Rate Hike Be? Wall Street's Top Minds Weigh In
interest rates The Fed rate hike announcement is due out Wednesday afternoon, and markets are anticipating another monster increase.
By Dan Burrows • Published
Amazon Early Prime Access Sale Is a Prime Day Redux
Amazon Prime Prime Day: So nice they had to try it twice. A fall event will follow the model of blowout sales over two days. But it will come with a different name.
By Bob Niedt • Last updated
The Best Cash-Back Credit Cards
Smart Buying Not interested in miles, points or other perks from your credit card? For those who want money back with a minimum of games, these cash-back cards are the way to go.
By Lisa Gerstner • Published
Amazon Warehouse: Where Amazon Prime Returns Become Your Next Online Bargains
Amazon Prime Amazon Warehouse products have a wide range of imperfections, but that leads to some often wildly discounted prices.
By Bob Niedt • Published
3 Key Ways You Can Help a Child or Grandchild Pay for College
college Options such as 529 plans, education savings accounts and tax-free gifts can ensure you don’t carry a child’s student loan debt into your golden years.
By Tony Drake, CFP®, Investment Advisor Representative • Published