How to plan for student loan payments

How to plan for student loan payments

Photo: Symphony Webber/Axios

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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. 

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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.

Between the lines: Despite measures to lessen the burden of student debt during the pandemic, looming payments are stressful.

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