President Trump has ordered an extension of suspended payments for federal student loans through Dec. 31, extending the CARES Act suspension through the end of the year. The forbearance continues to provide some economic relief to borrowers who have been financially impacted by the COVID-19 pandemic. Payments are not required, and interest does not accrue during this time.
But if you can afford to make your payments, it can save you some money in the long run. Here’s what you need to consider when deciding whether to make payments on your paused student loans.
The Case for Stopping Payments
If you are having financial trouble and struggling to pay your bills, stopping payments is an easy choice as it helps you afford other necessities. For eligible federal student loans, your loan servicer automatically pauses payments and the loans do not accrue any interest through the end of the year. If you need to confirm details, reach out to your loan servicer or log into your account.
Even if your pay has stayed the same, you could stop making payments and divert some cash toward building an emergency fund, paying down other debts and other financial goals.
Debts that have not been paused and still accrue interest, such as credit card debt or a mortgage, are not paused and might be a better priority. During the payment suspension, your student loans are set at 0% interest, so just about any other type of debt you hold may have a higher interest rate during this period.
The period of suspended payments still counts toward certain types of loan forgiveness, such as the Public Service Loan Forgiveness or an income-driven repayment plan. It also counts toward rehabilitation programs for borrowers with loans in default. There is no requirement to continue paying this year to receive these benefits.
The Case for Continuing Payments
If you can afford to, it might make sense to pay your student loans during the suspension. Borrowers who continue to make payments can pay down their debt faster – all payments are applied to the principal of the loan, reducing the amount of the loan that accrues interest and saving yourself some money in the long run.
This strategy makes the most sense if you’re in a standard repayment period (typically 10 years) or another plan that doesn’t seek forgiveness. Continuing to pay helps you pay off your loan faster and reduce the interest you pay. It’s also a better option when you don’t have other pressing, higher interest debts to consider.