5 Things You Can Do with Your Money While Student Loan Payments are Suspended
On the first day that President Biden took office, he extended the pause on federal student loan payments and 0% interest until September 2021. Welcome news to many who are struggling to keep with their high debt payments. With the extra relief, there are different options you can choose to help lower your debt.
1. Continue Paying Student Loans
You can choose to continue with regular student loan payments. The payments will go towards the principal on your balance, helping to lower the total amount you owe more quickly than if you had to pay interest. Usually, part of your payment would go towards interest, but with interest rates set at 0%, you will just be lowering the principal on your loans.
2. Pay off Other Debt
If you have other consumer debt, like credit card debt, the interest rate is usually much higher than student loans. If this is the case, you can take the money you would put toward student loans and apply it to high-interest debt.
3. Refinance Student Loans
Currently, federal student loan interest rates are at 0%, but that won’t last forever. Eventually, interest rates will go back up to their original amounts. If your interest rates are at 6-7%, you could benefit from refinancing them. Refinance rates are low and will eventually go back up, so if you can lock in a rate at 2-3%, you’d save a lot of money by paying less interest.
The decision to refinance is not that easy. If you decide to refinance now, you’ll be missing out on months of 0% interest that the government is currently giving. Also, if the government allows loan forgiveness, you would no longer qualify. President Biden originally wanted to give $50,000 in student loan forgiveness but has now advised congress to pass legislation to forgive $10,000 in student loans.
4. Spend It
The idea of suspending student loan payments was to help those who could not afford to pay. If you lost your job and don’t have an income currently, use the money that would go towards student loans on maintaining a roof over your head and providing food for your family.
5. Invest It
What’s better than not paying interest? Someone else gives you interest payments. If you’re a savvy investor, you could take your money and invest it. Instead of paying interest, you’d be earning interest. Although this is an option, you’d want to see if it is worth the effort. Since payments will eventually resume, you won’t want to invest this long term, as you’ll likely get better returns from paying off your student loans. The amount you would earn on a short-term investment probably is not enough to make it worth investing.
You can use an interest calculator to calculate if it would be worth it or not for you. Using the calculator for a $25,000 investment for six months at a 0.5% interest rate, you would earn $62.42. In September, interest on student loans goes back up, your returns on paying off your loans would be greater than what you could get in short-term investments.
Not everyone has the luxury of having money at their disposal. Depending on your financial situation and goals, there are different options for you. It always is a good idea to discuss your financial goals with a financial planner if you have any questions. No matter your current situation, if you have student loans, be thankful for the break that we are currently getting on our student loans.
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