Student borrowers’ financial burdens have become much lighter after receiving an extension of federal student loan payments, interest and collections. The extension will last until August 31, 2022, to “give borrowers time to gain financial security as the economy has more time to improve and covid cases to decline,” the secretary said. American for Education, Miguel Cardona.
The loan repayment pause began two and a half years ago, in March 2020, at the start of the pandemic. “The extension will give borrowers more time to plan for the resumption of payments, thereby reducing the risk of non-payments and defaults after the restart. During the extension, the ministry will continue to assess the financial impacts of the pandemic on student borrowers and prepare for a smooth transition of borrowers into repayment,” the Ministry of Education said.
The pause is intended to provide financial relief to all student borrowers, including:
- Borrowers with overdue and defaulted accounts: These borrowers will be able to enter a “fresh start” upon repayment, and their accounts will be restored to good standing. The impact of delinquency and default will be eliminated from their accounts.
- Borrowers who have been defrauded by their institutions: These borrowers can request a dismissal of all or part of their student loans if they believe they have been defrauded or misled under state law by their college, university or trade school.
- Borrowers eligible for the Civil Service Loan Cancellation Program: these borrowers are eligible public service workers whose remaining debt is fully wiped off after making 10 years of payments, or 120 payments in total.
Now that people can pocket extra cash, what should be done with it? BET.com has compiled four practical financial tips for the student loan break:
1. Think about paying for your needs
Necessities are your basic expenses. They count as all expenses that need to be paid: food, rent, gas or mortgage. Taking care of those things first is essential for survival, and a little extra money saved from that student loan break can go a long way.
2. Consider building emergency savings
An emergency fund provides a much-needed cushion for unexpected expenses, like car repairs, medical bills, and pet emergencies. According to credit karma, an emergency fund typically covers between three and six months of expenses. But the savings may vary depending on lifestyle, income, monthly costs, etc. If you want to build your emergency fund or start one from scratch, now might be the time to do it. When student loan repayments resume, you will have a safety net in case of a financial emergency.
3. Adding money to a retirement plan
Many financial advisors recommend people start saving for retirement as soon as possible, especially if you have a business that will match someone’s savings. If you put money into an employer-backed 401(k), most companies will match your contribution at a specific percentage. You can also put your money in an Individual Retirement Account (IRA).
4. Pay off high interest debt
Paying off high-interest debt, such as credit cards and personal loans, might help some people. These interest rates are often higher than student loan rates, so paying them off could help save you money in the long run. Consider trying the debt avalanche or debt snowball methods. By using the debt snowball method, you will pay off the smaller debt balances first. Using the debt avalanche method, you will first pay off the debt balances that carry the highest interest rates.