Regardless of the current or coming health effects of COVID-19 for you and your family, the pandemic has likely taken a toll on your household finances. It’s no mystery that, while the coronavirus has impacted the safety and wellbeing of communities across the world, it has also strained economic resources, shuttered businesses, and left millions without a job. That’s why it’s more important than ever to have a plan, organize spending priorities, and use resources efficiently in order to uphold your financial stability.
When it comes to your student loans, you may be wondering if it makes sense to postpone paying your educational debt. After all, with more pressing financial needs, it may be prudent to save your money for essential living expenses and other necessities. Ultimately, whether or not it makes financial sense to pay off your student loans during COVID-19 depends entirely on your financial situation. We’ve broken down some things you need to know.
How to Determine If You Should Pay Off Your Student Loans or Save For an Emergency
In March, as it rapidly became clear that the coronavirus pandemic would upend the lives of many, the U.S. Department of Education offered student loan borrowers a break from their monthly payments. Under the new law, payments for federal student loans are suspended until December 31, 2020, during which time no interest will accrue on outstanding debt.
For Americans facing student loan debt, this measure goes a long way to help borrowers who may be financially strapped as a result of COVID-19. But just because student debt payments aren’t due doesn’t necessarily mean you shouldn’t continue making payments.
For instance, if you’re employed and have the financial resources to do so, you should continue to pay off your student loans. Why? Because after December 31, 2020, you’ll still owe your outstanding principal balance, plus interest that will start accruing again. Even though there’s currently no interest on missed payments, this is a convenient time to reduce your principal balance because your interest rate will then be calculated off of a smaller number. The more you pay now, the more you’ll save over time.
So, what circumstances would lead you to not pay off your student loans?
- If you’re unemployed or furloughed: If you find yourself in a difficult financial position, there’s no reason that you should continue to pay off your student loans—at least until December 31, 2020. That money should be saved for essential living expenses and other necessities.
- You fear you may face financial hardship in the near future: COVID-19 has no clear end in sight. If you think you may be in line for continued financial struggles, perhaps save the money you would have used to pay off your student loans just in case something happens in the future. You can always choose to use this cash to pay down your student loans at a later point.
- If you’re enrolled in an income-driven repayment plan: These plans reduce your monthly payment to as low as $0. You may want to stop paying off your student loans in this case. If you do decide to continue business as usual, your non-payments will still “count” toward your obligatory payments to receive student loan forgiveness. Nonetheless, you’ll still owe income tax on the amount of student loan forgiveness you receive.
- If you owe high-interest credit card debt: If you have a lot of credit card debt, this could be a good time to finally overcome it. Your credit card debt likely incurs a higher interest rate, so it makes more financial sense to pay off your credit card bill before you tackle your student loan debt. Higher interest debt is more expensive given the higher interest expense.
If you’re not sure how to approach paying off your debt during this difficult time, the bottom line is that if you have the financial capital to do so, this is a great time to reduce your principal student loan balance and save money on interest rates. On the other hand, if you’re struggling with money—or if you think you may be financially strapped down the line—you should save your money and wait until the coronavirus forbearance period ends on December 31, 2020.
It may also be in your best interest to hire an experienced student loan lawyer who can help find a debt-relief solution that best suits your interests.
Contact a Skilled Debt Settlement Lawyer About Your Student Loans
No college student imagines suffocating under the weight of student loan debt. But as the coronavirus pandemic has impacted students across the country, many are left entering insecure job markets that lack the well-paying jobs for which they had planned. If you’re a student who’s plagued with the burden of student loan payments, consider reaching out to the attorneys at McCarthy Law.
Our legal team is dedicated to helping students reduce the principal and interest on their student loans. Our licensed attorneys will negotiate with lenders to ensure our clients pay only a fraction of their original loan balance. To schedule a consultation with one of our skilled student loan paralegals, call our office at (855) 976-5777 or fill out our online contact form.
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