Student Loans on Hold? 3 Things You Can Do This Month!
- Adam Herod
- Apr 15, 2020
- 3 min read
Introduction
With the CARES Act the government has put in place an administrative forbearance on government funded student loans, as well as a policy that does not allow interest to be charged.
0% interest and an administrative forbearance that will be in place until September 30, 2020.
That is really good news for a lot of borrowers.
What does this mean for you and what can you do from now until September?
1. Sit on the Cash
Your first thought is probably to bank the money you would normally be paying during on a month to month basis.
If you have $400 in student loan payments each month and you don't have to pay until September, then you could save $2,400.
Add that to your stimulus and your savings just got a nice jolt!
Unless your loans were privately funded, everything is on pause - including the interest rate charge. So your loans won't grow on you while in administrative forbearance.
So potentially adding $3,000 to your savings is not a bad idea.
2. Stay the Course
You may decide to stay the course and continue your monthly payments, as usual.
That's not a bad idea, either, because your monthly payments will all be applied toward the principal balance of each loan.
What does that really mean?
It means each payment up until the end of September will decrease the total balance of your loans in a more effective manner, because the interest is not being charged.
When the interest kicks back on come October 1, the amount of interest your loans accrue each month will be lower.
If you can afford to stay the course while providing for yourself or your family during this time it's a great option to get ahead.
*Keep in mind you will need to manually make these payments from now until the end of September, should you decide to stay the course.
3. Chop Down Your Loan Portfolio
Let's say you have four different loans in repayment and the total adds up to the $400 per month in payments referenced earlier.
Loan 1: $50 a month with a balance of $400
Loan 2: $75 a month with a balance of $600
Loan 3: $75 a month with a balance of $600
Loan 4: $200 a month with a balance of $3,000
Assuming all of your loans are funded by the U.S. Government, these loans will be in administrative forbearance until September 30, 2020, which means you will not incur any penalties for not paying your loans.
In order to chop down your loan portfolio, you're going to take your normal $400 a month debit and throw it all at loan #1.
Boom!
In the first month you've taken your total loan portfolio from four total loans to three.
Now, in the second month you won't quite be able to pay off the whole amount of loan #2. But you're going to get pretty close.
In the end, you will take yourself from four (4) total loan payments to only one (1) total loan in repayment.
Also, you have the added benefit of going from $4,600 in total loans to $2,200 - cutting them by more than half!
The next six months are a window of opportunity for some, and it may seem like a small thing to only pay off a few small loans; however, the fewer total debts in your portfolio the better.
Always!
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