Federal student loan borrowers, you are in the clear. For now. The federal government’s pause on student loan payments has been extended through the end of the year. That is great news, particularly for anyone who has lost a job or been unable to find one after graduating from school. It also gives you time to figure out your strategy going forward. Let’s take a look at several student loan scenarios and what this payment pause means.
If You Expect Tough Times Ahead
If you expect your financial hardships to go beyond the end of the year, take action now. Contact your loan servicer and ask about options. One path that could make things easier is an income-driven repayment. This payment plan limits your payments to a percentage of your income.
If You Just Graduated
If you just graduated from college, your first loan payment will be in January 2021. If your six month grace period is overlapping with this temporary pause, you won’t be hit with interest. Take this time to budget in your first payment and make sure it’s something that you can afford.
If You Have Private Loans
Unfortunately, this pause on payments only applies to federally-backed student loans. If you have a private loan, contact your lender to see what relief programs they have. Your lender may be willing to work with you to provide some relief given these extraordinary circumstances.
If You Can Still Pay
Let’s say you’re one of the lucky ones who is financially stable during the pandemic. As Marketwatch reports, you could try making payments toward the principal on your loan. Because interest rates on federal student loans have been set to zero under these programs, any money you send in flows directly to the principal making a bigger dent in your overall balance. That said, you could also take this time to build up emergency funds or pay down other debts.