Federal student loan borrowers have a little breathing room heading into 2022. But it’s never too soon to start planning for payments.
Driving the news: The Biden administration recently extended the pause on payments from Feb. 1 to May 1.
- Democrats called for Biden to extend the payment pause and cancel $50,000 per borrower over the summer, Axios’ Ivana Saric reported.
- It’s unclear where the administration will land on student loan cancellation. On the campaign trail Biden, pledged to cancel at least $10,000 of student debt per person.
State of play: By the time payments are scheduled to resume, it will have been two years and two months since they were last due.
- Federal student loan interest has remained at 0% since payments were paused in March 2020 under the CARES Act.
What you can do: Consider good debt versus bad debt, JHG Financial Managing Partner Jud Gee tells me.
- A mortgage, for instance with a lower interest rate, is good debt, while credit card debt isn’t. Student loans fall somewhere in between.
- If financially feasible, Gee recommends keeping your money invested during the no-interest period in order to put your money to work for you.
- A municipal bond, which is tax free and has around a 2% yield, is usually a safe bet.
Take the next three months to make sure you have an emergency fund for up to three to six months of living expenses, Gee says.
And consider taking advantage of the no-interest period to pay down your student loans, targeting unsubsidized loans before subsidized as the former’s interest rates tend to be higher.
By the numbers: The nation’s $1.75 trillion in student debt ($1.59 trillion in federal loans) monopolizes the spending power of many Americans, keeping them from buying homes and from having children.
- 42.9 million federal student loan borrowers owe an average $37,105, per the Education Data Initiative.
Between the lines: Despite measures to lessen the burden of student debt during the pandemic, looming payments are stressful.