Federal student loan borrowers are getting a bit of a break as 2022 approaches. But it’s never too early to start planning for payments.
Driving the news: The Biden Administration recently extended the break on payments from February 1 to May 1.
- Democrats have called on Biden to extend the payment pause and write off $50,000 per borrower over the summer, Axios’ Ivana Saric reported.
- It’s unclear where the administration will land on student loan forgiveness. On the campaign trail, Biden pledged to cancel at least $10,000 in student debt per person.
State of play: By the time payments are expected to resume, it will be two years and two months since they were last due.
- Interest on Federal Student Loans has remained at 0% since the suspension of payments in March 2020 under the CARES Act.
What you can do: Consider good debt versus bad debt, JHG Financial Managing Partner Jud Gee tells me.
- A mortgage, for example, with a lower interest rate, is good debt, while credit card debt is not. Student loans fall somewhere in between.
- If financially feasible, Gee recommends keeping your money invested during the interest-free period to make your money work for you.
- A municipal link, which is tax-exempt and yields around 2%, is generally a safe bet.
Take the follow up three months to ensure you have an emergency fund that can cover up to three to six months of living expenses, Gee says.
And remember to enjoy the interest-free period to pay off your student loans, targeting unsubsidized before subsidized loans, as interest rates on the former tend to be higher.
By the numbers: The country’s $1.75 trillion student debt ($1.59 trillion in federal loans) monopolizes the purchasing power of many Americans, preventing them from buying homes and to have children.
Between the lines: Despite the measures of lighten the burden of student debt during the pandemic, impending payments are stressful.