On Saturday, President Donald Trump signed a series of executive orders and memoranda, through preliminary negotiations in Congress, calling for an extension of pandemic relief for tens of millions of Americans.
One memorandum – probably the least controversial – proposes Education Secretary Betsy DeVos to proceed with deferring student loan payments through the end of the year without any interest being paid at this time. This is a three-month extension of the student loan relief policy under the CARES Act, which is set to expire on 30 September.
While continuing relief could allow lenders to pay no penalty for their student loans, it is important to remember, eventually you will have to repay your debts.
“One thing people need to keep in mind is that a suspension of payments is not the same as debt forgiveness,” said Bruce McClary, a spokesman for the National Foundation for Credit Counseling (NFCC).
CNBC Select spoke to three experts for their best advice when trying to figure out what to do with your student loans now that the loan period can be extended by the end of 2020, giving you three more months of free payments.
1. Pay in the main person
Before you start (or continue) deferring your federal student loans and extending your debt, consider taking advantage of this long period of zero interest rates, especially if you are still employed, have an emergency fund and no credit card debt.
The extended delay in federal lending could be an opportunity for lenders to accelerate their payoff progress, McClary says. Pending interest, any payments you make during this time will go straight to the main person’s chipping. So, if your payments eventually start up again, interest will accrue on a lower balance and your total debt burden will be smaller.
“The suspension of interest rates on federal student loans makes those payments even more influential,” McClary says. Plus, the sooner you can pay off your student loans, the better.
2. Focus on building an emergency fund
If you have not stashed money, keep your student loans in check during this deferral period and focus on saving.
Higher-education expert Mark Kantrowitz states that the break for extended student loans gives lenders who still have a constant income the opportunity to invest the extra money that would otherwise have been available after paying student loans to an emergency fund.
The first priority for lenders still deployed during the pandemic should be to build a safety net, he says, especially given the uncertain economic future. “They may still have a job, but who knows what might happen in a month or two?” Kantrowitz tells CNBC Select.
The general rule of thumb is to set up your life expenses from three to six months’. If you have paused your federal student loans, move the amount you normally pay each month into a savings account earmarked for your emergency fund. Consider depositing this extra cash into a high-yield savings account that costs no additional fees and has a higher interest rate, such as Ally Online Savings Account, Marcus at Goldman Sachs High Yield Online Savings or Synchrony Bank High Yield Savings.
3. Prioritize the payment of credit card debt
If you have both credit cards and student loans, you should take advantage of this extended student loan period to focus on paying off your credit card balances.
Because credit cards come with notoriously high interest rates when you have a balance, Kantrowitz suggests taking this break from your monthly student loan payments to prioritize them paying off.
Kaya Ladejobi, a certified financial planner in New York, agrees with Kantrowitz on what she calls “the financial order of operations”. First of all, make sure you have a savings safety net at this unusual time and then focus on paying off the debt with bilingual interest rates.
Once you have reconsidered your debt repayment priorities, now may be a good time to open a balance sheet credit card so that you can pay off your debt even faster, as you will not have to pay high interest costs on your existing balances.
The Citi Simplicity® Card has no late fees and zero interest for the first 18 months for both balance transfers and purchases (after 14.74% to 24.74% variable APR) and the US Bank Visa® Platinum Card offers a longer 0% APR for the first 20 billing cycles for both balance transfers and purchases (after, 13.99% to 23.99% variable APR). Just keep in mind that today’s balance sheet bids are harder to reach and usually require having good or excellent credit to qualify, with the exception of the Aspire Platinum Mastercard® for eligible creditors.
When you open a balance sheet card, make sure you have a clear debt repayment plan so you do not go back to where you started, and pay high interest rates on your balance.
For student loans that are struggling
If you are out of work due to the pandemic, or you just feel financially less, focus your resources right now on your most urgent need and take advantage of having your student loan extended longer, McClary says.
This means placing extra money on your high-priority accounts that affect your survival, such as housing and utilities. Once you have your feet on the ground again, you can then start using that cash in several ways.
The proposed extension of student loan repayment extension is for federal loans only, but if you are concerned about private student loans, please contact your loan servers to inquire about an early term or other financial relief options.
“At the end of the day, each person will have to examine their goals and current financial status to determine what their next immediate financial priority should be,” Ladejobi told CNBC Select.
Information about Marcus through Goldman Sachs High Yield Online Savings, Ally Online Savings Account, Synchrony Bank High Yield Savings, Citi Simplicity® Card, Aspire Platinum Mastercard®, and US Bank Visa® Platinum Card has been independently collected by CNBC and has not been reviewed. by the bank prior to publication.
Editors: Opinions, analyzes, reviews or recommendations expressed in this article are those of the editorial staff of CNBC Select only, and have not been reviewed, approved or otherwise approved by any third party.
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