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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
-
I'm want to give my 3 grandkids $5K each for Christmas.You're comfortably retired and want to give your grandkids a big Christmas check, but their parents are worried they might spend it all. We ask the pros for help.
-
If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
Could Traditional Retirement Expectations Be Killing Us?A retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
-
New Ways to Use 529 PlansTax-free withdrawals from 529 plans could help you sharpen your job skills.
-
I Need to Cut $1,000 From My Monthly Budget, and I've Already Given Up Starbucks and Dining Out. What Else Can I Do?Here are some creative ways to save up to $1,000 a month, even if you feel like you've already made all of the obvious cuts.
-
I Want to Help Pay for My Grandkids' College. Should I Make a Lump-Sum 529 Plan Contribution or Spread Funds out Through the Years?We asked a college savings professional and a financial planning expert for their advice.
-
I'm a Government Employee and Need to Get By Until the Shutdown Ends. What Can I Do?The second-longest shutdown in history is leaving many federal workers with bills due and no paycheck to cover them. Here's what you can do to get by.
-
Amazon Resale: Where Amazon Prime Returns Become Your Online BargainsFeature Amazon Resale products may have some imperfections, but that often leads to wildly discounted prices.
-
What Does Medicare Not Cover? Eight Things You Should KnowMedicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
How Intrafamily Loans Can Bridge the Education Funding GapTo avoid triggering federal gift taxes, a family member can lend a student money for education at IRS-set interest rates. Here's what to keep in mind.
-
How an Irrevocable Trust Could Pay for EducationAn education trust can be set up for one person or multiple people, and the trust maker decides how the money should be used and at what age.
