Student Loans: Pay Down or Hold Pat?
One of President Biden's first guidelines after taking office was to extend the federal student loan disbursement break until September 30. The suspension is welcome news for borrowers struggling with economic hardship and in some cases it could reduce the amount they owe.
During the moratorium, borrowers are credited with monthly payments for lending purposes even though they fail to make the payments. According to Savi, a tech company that helps borrowers manage their student loans, one of the borrowers enrolled in the public service program when the first moratorium was announced last March will be credited 19 of the 120 loans granted for by September 19 the granting of credit are required.
Similarly, borrowers enrolled in an income-based repayment plan that has a 20 to 25-year lending term will also receive repayment credits during the moratorium, says Mark Kantrowitz, financial aid expert and author of How to Appeal for More College Financial Aid.
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Because of this, it doesn't make sense for borrowers participating in either of these programs to make payments during the moratorium, "because it only reduces the amount of lending to which you are entitled," says Kantrowitz.
If you are not eligible for credit, the payments go directly to the principal of the loan during reparation, reducing the amount you owe when the payments resume. However, before telling your lender that you want to make payments - which you need to do because the suspension is automatic - consider whether your money can be better used. You should first pay off any high-yield debt like credit card debt and have at least enough in an emergency fund to cover your living expenses for half a year.
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