CLEVELAND, Ohio – President Joe Biden moments after taking office ordered an extension of the no-interest, no-payment period for student loans as the nation continues to deal with the economic fallout from the COVID-19 pandemic.
This is the break that was first part of the CARES Act passed in March, and later extended by the Trump Administration through January. The new extension will be at least through September, the AP reported.
“Too many Americans are struggling to pay for basic necessities and to provide for their families. They should not be forced to choose between paying their student loans and putting food on the table,” the White House said in announcing Biden’s request of the action by the Department of Education. The official action is expected soon.
What this means is that for people with government-held student loans, there will be no required payments through the relief period, and no interest will be charged to balances during this period. In the past, loan providers notified individual borrowers after the extensions were made.
What this does not do, however, is make the loan balance go away (though there has been talk of a proposal to eliminate $10,000 of student loan).
So what should you do based on this extension?
The choice is easy for those struggling to make ends meet. Skip the payments that are no longer required to free up money for groceries, rent and other pressing needs.
But what if you are doing OK financially during the impact? What should you do?
Here are some things to consider:
* Continue your payments: This will allow you to pay off your loans a little earlier than what would have been the case. Since you’re not being charged interest, everything you pay will go toward reducing the balance.
* Target your payments: This is a better option for people continuing to pay, but takes a little more effort. Loans taken out during college normally have different interest rates, depending on the year; so a lot of people have a series of loans with different interest rates all paid with a single monthly payment. During this period, identify the loans with the highest interest rates, and target all your payments there. You’ll be left with less on the higher-interest loans when the relief period ends. If all your loans are now show up in your account as 0%, ask your loan servicer for the rates that will be charged for each with the interest-free period is over.
* Save for a lump sum payment: For flexibility, set aside the money you have earmarked for the loans, with the intention of making a lump sum payment when interest charges return. This will provide you some cushion in case your personal economic situation unexpectedly heads south. This isn’t costing you anything to delay payment, because the interest rate now is 0%. Plus, there is the proposal floating out there to at some point forgive a lump sum amount.
But remember, the rules set by the CARES Act cover only student loans that are government held. If you aren’t sure about your loans, check with the place where you are making your payments.
Rich Exner, data analysis editor, writes cleveland.com’s and The Plain Dealer’s personal finance column – That’s Rich! Follow on Twitter @RichExner.
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