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When the government announced that they were extending the student loan forbearance period through May 2022, many people breathed a sigh of relief. According to Hanneh Bareham, student loans reporter at Bankrate.com, “This was originally instated with the CARES (Coronavirus Aid Relief and Economic Security) Act in March 2020 as a way to help alleviate some of the economic impact of the COVID-19 pandemic.” Bareham says, “This has allowed federal student loan borrowers to suspend their principal payments as well as their interest payments. And it has also halted collections activity on defaulted federal loans.”
With three more months to take advantage of this student loan relief option, you may have questions. Is it really a good idea to stop making payments? Should you stop making payments on every student loan? Will the student loan forbearance period be extended again?
As anyone who has student loans knows, it’s not as straightforward and clear-cut as one might hope. To help you make sense of what to do during this current student loan forbearance period, Bareham shares a few important tips and pointers below.
1. Know which loans qualify for the student loan forbearance period.
To be clear, only federal student loans are eligible for the current student loan relief program that’s part of the CARES Act. “This is a federal benefit,” Bareham explains. “It only applies to loans that are owned by the Department of Education.” There are exceptions, however. Federal Perkins loans that are held by individual institutions or colleges are not eligible for the student loan forbearance period that was just extended. Neither are older Federal Family Education Loans (FFEL). And of course, private loans are not eligible for this program, although some private lenders may still offer a similar benefit.
Learn more about Student Loan Forbearance here.
2. Use your money wisely.
Just because you don’t have to make payments on your federal students doesn’t mean you can’t still make payments on your loans. “If you want to continue making your payments because the interest rate on your federal student loan is high, continue to make your payments so you can get those paid off,” Bareham says. “Just because the federal government has given you the option to stop maying payments, it doesn’t mean you have to. You can still make your payments. You can make as many or as few as you want, and you won’t have any interest charged.”
She adds, “If on the other hand you really want to bolster your emergency savings, that could also be a really great way to utilize this period.”
3. Understand your options.
Believe it or not, federal student loans actually come with a lot of benefits and flexibility. This relief program is one of them, so make it a point to do your research and familiarize yourself with all of the things you could be taking advantage of. “There are so many options for repayment, whether you want a lower monthly payment or a lower interest rate. There are also alternate repayment plans and there are forgiveness options,” Bareham says.
4. Make a plan for when the relief period ends.
Right now, the government has signaled that the federal student loan payments will resume in June. With that in mind, you should start thinking about how you’ll begin making your payments again if you’ve stopped. While some people may automatically think to refinance federal loans to a private lender, Bareham says that’s not necessarily the best option. “We advise waiting until the end of the student loan forbearance period to refinance. If you refinance with a private lender, you’ll lose all of your federal loan benefits and protections.” Bareham also cautions that while lower interest rates on private loans may initially seem attractive, most private loans have variable interest rates that can change (aka increase) over time. With federal loans, the interest rate is fixed and stays the same for the life of the loan.
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