The Covid-19 pandemic and the resultant economic downturn in many states have significantly impacted many American’s incomes. Consequently, Congress approved a $2 trillion student loan stimulus bill that suspends all federal student loans through September 2020. This brief hiatus means no interest accumulates on these loans during the suspension, and this period will be considered for forgiveness. If your income has been affected, this might bring some temporary respite.
If you still have a steady income, you might wonder about the best course of action given the temporary freeze on your federal student loans. Regardless of your circumstances, there are several constructive financial steps you can take while your federal student loans are on hold.
START SAVING MORE
Increasing your savings should always be a priority, but even more so in the current climate. Observing the chaotic events of this year, we should all stress the importance of expanding our emergency funds. Experts advise having a minimum of 3-6 months of expenses stashed away. For those with unstable income or single income households, bigger cushioning is suggested.
The ongoing global pandemic is transforming many aspects of our daily lives, and it is plausible that changes will persist through 2020. Cash is crucial, and ensuring you have a sufficient safety net is essential. Never assume that federal student loan payments will be paused again, so use this opportunity to boost your savings.
STAY AHEAD OF YOUR BILLS
If you’re fortunate to maintain stable and reliable income, you might want to use the money you would have spent on your student loans to stay ahead on your bills. Despite promises of rent/mortgage and bill assistance when the lockdown started, trust was not overwhelmingly high. Certain relief efforts did come through, but skepticism remains.
However, you can create your own bill relief fund while your students loans are on pause. This fund, separate from your emergency savings, could help you stay current on essential bills. Prioritize key expenses like your electricity, groceries, and commuting costs. If you already have a budget, you’ll know how much these essentials cost. Aim to keep these expenses current and even try to get a month or two ahead for added security.
The newly passed student loan stimulus bill can immensely benefit many people.
PAY OFF HIGH-INTEREST DEBT
If you’ve already accomplished these goals and have saved a comfortable amount, examine your high-interest debt. Currently, your federal student loans are interest-free. However, other forms of debt, such as credit cards, high-interest personal loans or auto loans, can pose significant burdens if not tackled right away.
If possible, allocate some extra funds towards this debt to free up more income in future. Clearing high-interest debts allows for more financial flexibility, which is beneficial in these unpredictable times.
CONTINUE MAKING STUDENT LOAN PAYMENTS…BUT BE CAREFUL
Only consider this step if you’ve managed to accomplish all the previously stated tips. Some people may want to continue their student loan payments since more money will go toward the principal.
If you set a target to clear your loans by a certain date, now could be the opportunity to make some progress. However, ensure you have your basic needs covered and have sufficient savings. Right now, it’s survival mode for many, and that’s okay. If you can do more, great, but don’t fret if you can’t. Also, for those banking on student loan forgiveness, making payments during this period would be unnecessary.
IN SUMMARY
While federal student loan relief plans have always been welcome, the recent student loan stimulus bill can aid many people right now. There are numerous financial steps you can take whilst your mandatory payments are suspended. Evaluate your current situation and financial needs to make the best possible decision for you and your family.
