The CARES Act suspended payments you’d normally make on your student loans held by federal government agencies* with an “administrative forbearance” lasting through September 30. It also waived interest accumulation on such loans through that date. This is all automatic. You need not do anything.
But although you’re not required to make payments, you’re not prohibited from making them, either. And there are advantages to doing so.
Say you owe the average for those who borrow as undergraduates — $30,000 at a 4.69% interest rate. And say you’re paying $314 a month under the government’s Standard Repayment Plan. Make no payments between now and September 30 and what you’ll owe on October 1 will be exactly what you now owe. But keep making your $314 monthly payments and your principal balance will be $1,884 less on October 1. As a result, you will:
- Pay Less on What You Borrowed: Make no payments and the interest you’ll eventually pay on your federally-held debt will be $7,842. But keep making payments over the next six months and you’ll end up paying $6,749 — or $733 less — in interest on that debt. Why? Since there’s no interest on that debt right now, 100% of every dollar you pay will reduce your loan principal, and by diminishing principal, you’ll pay less interest.
- Eliminate Your Debt Faster: Keep making payments and your federally-held debt will be paid-in-full six months earlier than if you don’t make your suspended payments.
- Match Your Employer’s Payments on Your Debt: If your employer also makes payments on your federally-held college debt as part of your fringe benefit plan, it may only match payments you make. So before deciding whether to stop making payments on your federally-held loans, find out how your decision will affect employer payments.
Carefully scrutinize your current budget. Don’t make payments if doing so will undermine your ability to cover necessities like food, housing, and transportation. But there are definite advantages for continuing to make payments if you can afford to do so.
By the way, the U.S. Education Department says that, if you want to keep making payments by auto-debit, you should contact your loan servicer and opt out of your administrative forbearance so your auto-debit payments will resume. But not all servicers will restart auto-debit right now, so you’ll have to make payments manually. Contact your servicer to learn how to keep making payments through September 30.
* Student loans held by federal government agencies include all loans made under the Federal Direct Loan Program (FDLP). They do not include (a) loans made under the Federal Perkins Loan Program unless the postsecondary schools that made those loans have turned their ownership over to the federal government; and (b) loans made under the Federal Family Education Loan Program (FFELP), also known as Stafford Loans, unless the commercial lenders that made those loans have turned their ownership over to the federal government.
To determine ways to manage you student loan debt during the current coronavirus national emergency, become a follower of the College Affordability Solutions website so you’ll always be notified about special bulletins such as this.