Ekenna Anya-Gafu, CFP®, AIF®, AAMS®

Should I pay off student loans during 0% interest and deferment?

Ekenna Anya-Gafu, CFP®, AIF®, AAMS®

Ekenna Anya-Gafu, CFP®, AIF®, AAMS®

Should I Pay off Student Loans During 0% Interest and Deferment?

student

A common question I’m asked is whether or not someone should pay off their student loans while the Cares Act keeps student loan payments deferred and 0% interest.

As it is, loan repayments for most federal student loan borrowers have been suspended, with no interest from 2020. This policy doesn't extend to private student loans though. The countdown to the end of the student loan forbearance period is said to start once the Supreme Court issues its ruling or on June 30, 2023, depending on which one comes first. After the decision is made, student loan payments will resume 60 days following the Supreme Court's decision or 60 days following June 30.

Key Points
  • From March 2020, loan repayments for most federal student loan borrowers have been suspended

  • The end of the student loan forbearance period is said to start once the Supreme Court issues its ruling or on June 30, 2023, depending on which one comes first. After the decision is made, student loan payments will resume 60 days following the Supreme Court's decision or 60 days following June 30

  • Some factors to consider when paying off student loan debt during 0% Interest and deferment include your financial situation, job stability and your long-term goals

  • If you're considering paying your student loans during a 0% interest period, some of the benefits that you'll enjoy include saving money on interest, reducing your debt load and getting ahead on your payments

Disclaimer

The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.

Worrying is Like Paying on a Debt that May Never Come Due

There isn’t a plan for complete student loan forgiveness. The Biden administration has proposed canceling $10,000 in federal student loan debt for all borrowers or $20,000 for Pell grant recipients, and only for borrowers making less than $125,000. This plan would help provide relief to an estimated 15 million borrowers who are currently struggling to make their student loan payments.

However, borrowers of federal student loans can still continue making payments during this forbearance period. Latest federal data indicates that a total of 500,000 student loan borrowers continued making payments during the pause.

Should I Pay off My Student Loans During Deferment?

Whether or not you should pay off your student loans during deferment depends on your individual circumstances and financial goals.

During deferment, you are not required to make payments on your student loans, and the interest on some types of loans may be subsidized by the government. If your loans are subsidized, this means that the government pays the interest that accrues during deferment, which can save you money in the long run.

However, if your loans are not subsidized, interest will continue to accrue during deferment, and if you do not make payments, the interest will be added to the principal balance of your loans. This means that you will end up owing more money in the long run.

If you have the financial means to make payments on your loans during deferment, it can be a good idea to do so, especially if your loans are not subsidized. Making payments during deferment can help you reduce the overall amount you owe and can save you money on interest charges.

However, if you are experiencing financial hardship or have other financial obligations that take priority, it may not be feasible for you to make payments on your student loans during deferment. In this case, it may be more important to focus on managing your immediate financial needs and obligations.

Ultimately, the decision of whether or not to make payments on your student loans during deferment will depend on your individual circumstances and financial goals. It may be helpful to speak with a financial advisor or student loan expert to help you make an informed decision.

Factors to Consider When Paying off Student Loan Debt During 0% Interest and Deferment

Whether or not you should pay off your student loans during a 0% interest and deferment period depends on your personal financial situation and goals.

Here are some factors to consider:

Your current financial situation If you are struggling to make ends meet or have other high-interest debt, it may make more sense to focus on paying those off before paying down your student loans.

Your job stability If you are concerned about job loss or a reduction in income, it may be wise to hold onto your cash and build up your emergency fund instead of paying down debt.

Your long-term goals If you have other financial goals, such as saving for retirement or buying a home, it may make more sense to allocate your funds towards those goals instead of paying off your student loans.

Benefits of Paying off Your Student Loans During a 0% Interest Period

money to pay off student loans

That being said, paying off your student loans during a 0% interest and deferment period can have several benefits, including:

Saving money on interest

Paying off your student loans during a 0% interest period means that you won't be accruing interest on your loan balance. This can save you money in the long run.

Reducing your debt load

Paying down your student loans can help reduce your overall debt load and improve your credit score.

Getting ahead on payments

By making payments during a 0% interest and deferment period, you can get ahead on your payments and potentially pay off your loans faster once interest starts accruing again.

Getting Started on Student loan payments

Ultimately, the decision to pay off your student loans during a 0% interest and deferment period depends on your personal financial situation and goals.

If you would like to start or continue making payments during this forbearance period, simply get in touch with your student loan servicer and they will help you make the repayments at the 0% interest rate.

It's important to weigh the pros and cons and make a decision that aligns with your overall financial position.

Bay Street Capital Holdings

Bay Street Capital Holdings

Bay Street Capital Holdings, located in Palo Alto, CA, is a financial planning, wealth management, and investment advisory firm with a unique focus on managing total risk and volatility to preserve and increase total assets and income.

Founded by William Huston, the firm has over 13 years of experience supporting the largest retirement plan in the US and has been recognized as one of the Top 100 Financial Advisors for 2022 by Investopedia.

Bay Street advocates for diverse and emerging fund managers and entrepreneurs and is the only Black-owned firm among the twenty recognized firms in California. With $480 million in assets under management, the firm was a finalist in the Asset Manager for Corporate Social Responsibility category in 2021.

Sources

https://www.nerdwallet.com/article/loans/student-loans/you-can-pause-two-student-loan-payments-but-should-you

https://www.cnet.com/personal-finance/loans/should-i-make-student-loan-payments-before-the-pause-ends/

https://studentaid.gov/announcements-events/covid-19/payment-pause-zero-interest

https://www.investopedia.com/what-is-student-loan-deferment-4771251

WHAT WE'RE THINKING

Let's Talk

Schedule a complimentary consultation with one of our advisors to learn more about Bay Street and how we can help you achieve your goals for your financial future.

form img