Why You Might Want to Stop Paying Your Student Loans Right Now


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The CARES Act allows federal student loan borrowers to put off loan payments until October 2020—and many of those loans will be set at 0% interest during the forbearance period. This is different from other types of forbearance programs (think credit cards, mortgages), in which payments are waived but interest continues to collect on the outstanding debt.

If you have the option to temporarily skip student loan payments without running up additional interest, should you? If you’ve been unemployed or furloughed as a result of the coronavirus pandemic, you might appreciate the opportunity to save a little extra cash every month. But what if your income hasn’t changed? Should you also be thinking about building your savings—or should you focus on paying down your federal student loans during this brief, interest-free period?

While making student loan payments that go directly towards the principal might be tempting, it’s worth asking yourself whether you’d be better off stockpiling cash for the future. After all, we may be heading into a recession—and the income you’re bringing in today might not be there tomorrow.

At Money.com, Betsy Mayotte (president and founder of The Institute of Student Loan Advisors) suggests that federal student loan holders think carefully about whether they really want to make payments right now:

“We don’t know how long the economic effects of this pandemic are going to last — I certainly think beyond September,” Mayotte says. “I would recommend people kick up their emergency fund money to be as robust as possible.”

If you already have an emergency fund in place, you could use the money you would have put towards student loan payments to pay off other kinds of debt—maybe that credit card debt that’s still accruing interest during forbearance, for example.

It’s worth mentioning that not all federal student loans qualify for interest-free forbearance right now. To quote the U.S. Department of Education at StudentAid.gov:

From March 13, 2020, through Sept. 30, 2020, the interest rate is 0% on the following types of federal student loans owned by ED:

  • Defaulted and nondefaulted Direct Loans
  • Defaulted and nondefaulted FFEL Program loans
  • Federal Perkins Loans

Please note that some FFEL Program loans are owned by commercial lenders, and some Perkins Loans are owned by the institution you attended. These loans are not eligible for this benefit at this time.

But if your federal student loans do qualify for 0% interest forbearance, ask yourself whether you want to use this time to pay down the principal—or if the money you were thinking about putting towards your student loans could be put to better use.