What to do with Your Student Loans While They Have 0% Interest

Back in March, as a part of the CARES Act, all payments on federal student loans were suspended, and interest lowered to 0%. Initially, this was to expire on September 30, 2020, but on August 8, 2020, the suspension of loan payments, stopped collection of defaulted loans, and interest waived, was extended until December 31, 2020.

With interest rates on federal student loans canceled until the end of the year, the question is, what should you do with student loan payments in the meantime? There a few options, and depending on your current finances, you must choose what is best for your situation.

The aid from the CARES Act is specifically for those with unseen financial changes. If you were laid-off or your income was drastically changed, the extra income that typically goes toward student loan payments can be helpful during this time.

Even though you don’t have to pay your student loans, you still might want to, if you can afford it. If you were fortunate enough to keep your job and continue to have an income, keeping with payments during this time will allow you to pay them off more quickly. A portion of your payment typically goes toward interest, but during this time, the total amount will go towards the principal. The more you owe, the greater the amount of interest that you’re paying, so by putting more toward the principal, you can significantly decrease the total cost of your loans.

Another reason you might not want to keep your loan payments suspended is if you are working for a qualifying employer under the Public Service Loan Forgiveness Program. Under this program, you must make 120 qualifying payments towards your student loans, and under the CARES Act, these still count. By not paying your loans, you can include the suspended payments, without having to put anything towards your student loans.

If you’re a savvy investor, another option is that you could take the money that you would be putting towards your student loans and invest it. The stock market has been unpredictable that past few months, and some are projecting another correction, which makes this strategy risky. You could put it in something safer, such as a CD. However, the interest you would get out might not be worth your effort in moving the money around, and the savings you would get by lowering the principal could be much more than anything you would gain from a short term investment.

What are you doing with your student loans during this time? Please comment below the original post, sign up to receive future posts by email and share with your friends!