Pay off student loans faster (and save money) during coronavirus — 4 things you can do
In response to the spread of the coronavirus and its impact on the U.S. economy, the federal government took steps to help Americans get through the next several months on a lower income.
If you have federal student loans, you don’t have to make payments until September 30, 2020. The Coronavirus Aid Relief, and Economic Security (CARES) Act, approved the placement of all qualifying federal student loans into an administrative forbearance. Lenders automatically enrolled qualifying loans and all auto payments should have stopped. Additionally, if you’re already behind on your student loan payments, lenders cannot call or send letters to collect the debt through September 30.
Perkins Loans, Family Federal Education Loans, and private loans do not qualify for this forbearance.
If borrowers have private student loans, there are several ways they can lower their student loan debt faster.
1. Refinance student loans
In late March, the Federal Reserve dropped interest rates to zero percent to help encourage consumer spending during the spread of the coronavirus. Accordingly, you may qualify to refinance your federal student loans. If you have a loan that isn’t covered by the CARES Act, refinancing your loan could reduce your expenses immediately.
Don’t forget to visit Credible to research rates from different private student loan companies to ensure you save as much money as possible.
However, there is a caveat. Borrowers with loans covered under the CARES Act may want to wait to consider refinancing. It’s hard to beat a $0 monthly payment at a zero percent interest rate.
2. Keep paying anyway
You do not have to continue making monthly payments to your student loan lender, but that doesn’t mean you shouldn’t. The current interest rate on all federal student loans is 0 percent. If you continue making your monthly payments, your entire payment will go directly towards reducing the principal balance.
If you want to continue making payments, you can make the payments on your lender’s website or call to ask them to reinstate your automatic payment agreement.
For example, if your monthly payment is $300 per month and you continue making the same payment at zero percent interest rate, you could significantly reduce your total loan balance by the end of September, without spending any extra money.
Remember, if your situation changes, you can stop making monthly payments and request forbearance again before the September deadline.
If you have a little extra money, now might be a good time to make additional payments as well. The extra money you sock towards your student loan payment will have a much bigger impact with a zero percent interest rate.
3. Save it in an account that can accrue interest to make a bigger payment
If you want to give your money even more power, consider depositing your monthly payment into an interest-bearing savings account. While you’re not likely to earn a lot of extra money, every little bit counts. You’ll want to shop around for accounts that offer the highest returns with little or no fees to maximize your savings.
Once your monthly payment is due again, you can make a large lump sum payment towards your student loan bill.
4. Get (some) of your money back
As part of the CARES Act, federal student loan lenders were supposed to stop taking any automatic withdrawals from your bank account. If your lender was a little late putting that into place, you could have any payments you made after March 13 returned to your bank account. You’ll need to call your lender directly to request the payment return. Again, this is for those borrowers with outstanding federal student loans - not private ones.
Student loan borrowers have a lot of flexibility when it comes to how they handle their payments until at least September 30. Whether you want to continue making monthly payments, pay extra, or make a partial payment, you can do so without late fees or penalties. Take some time to consider all your options, especially if the administrative forbearance program doesn’t cover your loan. And remember, if you are considering refinancing your student loans, do your research. Use a tool like Credible to make sure you’re saving as much money as possible.