Only 11% of borrowers are currently repaying federal student loans during the coronavirus, according to an analysis by Mark Kantrowitz, student loan expert and editor of Saving For College.
Borrowers have suspended payments for many reasons, and in some cases, this is the right course to take. But not all types of student loans qualify for automatic forbearance, and there are both pros and cons to consider before. halt student loan payments.
Why are so few borrowers repaying their loans during COVID?
Millions of borrowers with federal student loans stopped paying those loans during the coronavirus for one simple reason: They don’t have to do it anymore. As part of its coronavirus relief efforts, the federal government has put all federal student loans on administrative forbearance until December 31.
If you have private student loans, consider refinancing to lower monthly payments and shorten the life of your loan. Use Credible to buy refinance rates from several private lenders. Browse loan products, loan repayment plans and more in their multi-lender marketplace.
Not only were student loan payments suspended – first by the CARES Act, then by an executive order – but interest was also suspended. This means that those who have loans from the Ministry of Education can stop making their monthly payments without any financial consequences and their loan balance will not increase.
Many borrowers who were previously difficulty managing student loan payments see this automatic forbearance as a respite from high monthly bills, allowing them to work less or redirect their limited funds to other priorities.
Some former students with student loan debts, who have found themselves unemployed due to COVID-19, also choose not to repay their student loan debts when they are not required to. And others, whose jobs have remained unchanged, still skip payments to prioritize other financial goals such as paying off other higher-interest debt.
Should you continue to make private loan repayments now?
Unlike federal student loans, there is no automatic administrative forbearance if you have private student loans. Many lenders are willing to work with you to suspend payments by putting loans on hold if you contact them and explain to them that you are having financial difficulties. However, this is an option at the discretion of your lender only.
If your private student loan lender allows you to suspend payments, interest will not stop accumulating, unlike federal student loans. All the while your payments are on hold, your lender will continue to charge interest, so you will end up with a larger balance to pay off.
You don’t want to increase your total borrowing costs by suspending payments on private loans and increasing your outstanding balance, unless it is an absolute last resort. Instead, you should aim to keep paying your private loans on time.
If you are concerned about the monthly cost of your private loans because your job has been affected by the coronavirus or because you are concerned that the economic chaos caused by the virus will put you at risk, you should consider taking some steps to reduce your interest rate and payment. Refinancing your private loans might be the best, and often the only, option, especially now. current record rate.
Credible can help you determine if refinancing your student loans is affordable for you. You can visit Credible to compare student loan refinancing rates from several lenders without affecting your credit score.
And if your loan application is approved, you can use The Credible Student Loan Refinance Calculator to see what your new monthly payment might be if you get a loan refinance and lower your current loan rates.
Should You Pay Back Federal Student Loans During COVID?
While borrowers currently do not have to make payments on federal student loans, there are pros and cons to taking advantage of the abstention.
The biggest advantage is that you can use the money for other things without worrying about your loan balances growing. If you have high interest credit card debt pay or fall behind on retirement savings, you can take this opportunity to catch up.
The downside, however, is that you will delay the time when you break free from your student debt. You also waive the possibility of making payments that would only go to the principal. If you choose to pay your monthly bill now while interest is suspended, your entire payment will be used to reduce your balance. It could shorten your payment term and reduce total interest charges.