Adulting Student Life

How to Prioritize (Not) Paying Off Your Student Loans During the Moratorium

May 24, 2021

Student loans have been in the news recently as there has been buzz surrounding some sort of government relief soon. If you are a borrower looking for relief, you may be wondering what your best move is regarding repayment. How you act now could help you gear your finances up for any upcoming legislation on the matter.

What you are about to read will seem counterproductive – but stick with it till the end.

Hold Off On Repayment Until the Moratorium Expires

It may seem crazy not to take advantage of our current relief period to pay down some of those federal loans, but, instead, consider taking what money you would be paying, interest included, and putting it into a separate savings account.

This interest-free period means that the total amount you have to pay back won’t increase in the interim. By putting the money you would typically use for loans aside, you can create a pool of funds that will amount to a significant sum whenever the moratorium is allowed to expire.

The Political Future of Student Loans is Uncertain

President Biden has stated that he is open to $10,000 of blanket student loan forgiveness, eliminating some of the economic strain for many borrowers. However, there is reason to believe that the relief will be much broader.

The last major stimulus bill extended the moratorium until March 2022 and made any future loan relief tax-exempt. Though we are not quite sure what will happen, there is strong evidence that lawmakers are gearing up for some type of comprehensive action regarding student loans. We also know that student loan relief has some bipartisan support, though disagreements exist.

The Scenario You Want to Avoid:

Let’s say you owe $15,000, and pre-COVID, you were paying $300 a month, including interest. You decided to make monthly payments throughout the pandemic even though the interest was frozen and payments were paused.

Now we’re over a year into the pandemic, and the moratorium on student loan repayment is extended until at least March 2022. Let’s imagine that the progressive wing of the democratic party can convince Joe Biden to raise the initial offer of $10,000 to $25,000 of loan forgiveness.

You’ve essentially wasted all the money you’ve been paying back throughout the moratorium because your loans were forgiven.

If you had put that money aside, you’d have a significant amount of cash.

What If Nothing Gets Forgiven?

If there is no action taken to combat the student loan crisis, then we can assume payments, as usual, will resume in March 2022. If you had been saving your monthly payment amount, then in February of 2022, you can make a large lump sum payment that puts you back on track as if nothing happened.

Why Not Paying Right Now Makes Sense

Because we know something will likely happen regarding the student debt crisis, and because we don’t know exactly what that something will be, the best course of action is to save that money you would normally use for repayment.

You either have some (or all) of your loans forgiven and have a large sum of money available, or you resume payments like nothing ever happened. By not paying during the moratorium, it’s a win. However, by paying, there is a chance you’ll lose.

BIO: Veronica Baxter is a writer, blogger, and legal assistant operating out of the greater Philadelphia area. She writes for the Law Offices of David Offen, who is a successful bankruptcy lawyer in Philadelphia.

You Might Also Like