Uses for Your Money Before the Student Loan Deferral Ends


In March 2020, the United States Department of Education extended a series of relief measures aimed at helping borrowers with federal student loans through the pandemic. The temporary deferment period applied to eligible federal student loans and included the following:

  • A suspension of payments
  • A fixed interest rate of 0%
  • A temporary halt to collections on delinquent loans

While the initial deferment period was only supposed to last several months, it has been extended six times since then, with the current extension running until August 31, 2022. Overall, this means borrowers with eligible federal loans still have all summer of 2022 to delay payments and avoid interest before they have to process their federal student loans again. It is also possible that President Biden will extend the emergency adjournment period by several months, although no one can say for sure if that will happen.

If you’re worried that you’ll only have a few months left with no student loan repayments and no interest, you might be looking for ways to make the most of that time. Read on to learn about the best uses for your extra cash for the rest of the summer, or until whichever date in the future loan payments resume.

Key points to remember

  • The US Department of Education has worked with the federal government to enact an emergency deferral of eligible federal student loans due to the pandemic. While the initial deferment period began in March 2020, it has been extended a total of six times since then.
  • At the moment, the deferral period is supposed to last until August 31, 2022. If this deferral period is not extended again, it means that borrowers with eligible loans will have to make payments again from September 2022.
  • There are several ways to prepare for the inevitable restart of student loan repayments as well as several smart uses for any extra money you have so far.

Pay off high interest debt

If you have balances on credit cards that charge a high APR, paying them off makes more sense than making federal student loan payments. After all, eligible federal student loan rates are set at 0% at least until the end of August 2022, but the median credit card interest rate is currently 19.62% (this figure is based on data collected from credit cards in the Investopedia Card Database as of May 2022).

Paying off credit card debt is more rewarding than a 0% loan, since you immediately save money on interest. Plus, you can save a lot on interest with additional payments based on your interest rate and the amount you owe.

For example, paying $100 a month for a credit card balance of $5,000 with an APR of 19% would cost you $4,718 in interest payments over the 98 months it would take to be debt free. . However, increasing that payment to $400 per month would leave you paying off your debt for only 14 months, and your total interest payments would be only $523.

Repay private student loans

Most student loan borrowers know that the current payment deferral and 0% flat rate only apply to eligible federal student loans. That means borrowers with private student loans have been stuck paying all this time, and interest has accrued on their loans throughout the pandemic to boot.

With that in mind, it may make sense to focus on paying off private student loans and stopping payments on federal loans now. By channeling your extra money into private student loans, you can save on interest and pay off those loans faster without impacting your federal loan balance or total interest owed.

Pay off federal student loans anyway

If you don’t have any other debt to speak of, but do have some extra money, it may also be a good idea to continue paying off your federal student loans during the deferment period. The 0% fixed interest rate ensures that every penny you pay for federal loans goes toward the principal of your balance right now. This means you can save money by not paying interest on those balances later, and you can also speed up your repayment schedule.

Remember that the amounts you repay will not be eligible for student loan forgiveness if this occurs. While President Biden is currently considering taking executive action to forgive a certain amount of student loan debt per borrower, no official decision has yet been made.

Create an emergency fund

You do not know what to do ? In this case, you can always start putting money aside in a high-yield savings account. This could help you build an emergency fund, which most experts say should hold three to six months worth of expenses. This type of fund may seem unnecessary, but your emergency fund is crucial if you want to prepare for unexpected expenses like car repairs or unforeseen events like job loss or serious illness.

Also, remember that you can use your extra savings to pay off student debt later, once you’re ready. Either way, storing the extra money you have in a savings account will ensure that your money is actually there when you need it.

Does it make sense to repay student loans while forbearance?

Paying off student loans during this forbearance period can make a lot of sense if you have extra money to spend. The 0% interest rate ensures that every penny you pay right now goes directly to the principal of your balance. This can help you save on interest later while speeding up your loan repayment date.

How do I find my student loan agent?

Can I use student loans to rent?

Student loans can be used to pay for room and board, which includes off-campus accommodation like an apartment. However, when you factor in the cost of furnishings, meals, utilities, a security deposit, and other housing-related expenses, an apartment can cost significantly more than an on-campus dorm.

The essential

If you have federal student loans that you could pay off right now, but aren’t sure whether or not you should, it’s probably best to focus on other debts you have first. With the interest rate on eligible federal student loans currently set at 0% until August 31, 2022, waiting to resume with those payments will cost you nothing at all.

In the meantime, you have a window of time to progress in other areas of your financial life. You could pay off your high-interest debt, but you could also focus on paying off private student loans. If you’re not sure what to do yet, saving your extra cash in a high-yield savings account is probably your best bet.


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