Extension of the student loan payment freeze

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In one of his first changes of office, President Joe Biden instructed the Ministry of Education on Wednesday to extend the payment break for federal borrowers until at least October 2021.

Biden’s Executive Order is a Continuation of the relief that has existed since then The CARES law was passed in March 2020This gives 42 million student loan borrowers a break from their monthly payments and accrued interest during the pandemic.

CNBC selection asked four student loan experts to weigh what borrowers should do during this extended leniency period. Here’s her advice on how borrowers should take advantage of this extension during the ongoing pandemic.

What Cashed Borrowers Should Do

The continued federal interest-free moratorium on student loan payments means you won’t have to make your monthly payments until at least September 2021. Interest accruing during this suspension will also be waived.

Borrowers who are still facing financial difficulties from the pandemic should put whatever extra money they are saving for High priority invoices this affects their survival, such as housing and supplies.

It is also worth taking advantage of this 0% interest period when juggling other debts. If you can afford your basics, use the extra money to pay back outstanding balances on high-yield debt, he says Travis Hornsby, Founder of Student Loan Planner.

“You want to prioritize other debts like credit cards, auto loans, and mortgages – really anything that actually charges an interest rate,” he told CNBC Select.

University specialist Mark Kantrowitz Agrees: “It might be better to use the money to pay off higher interest rate loans first to save [borrowers] more money for interest over the life of the loans. “

Because credit cards Calculate double-digit interest ratesCarrying a scale becomes expensive – and fast. Most card issuers Compound interest dailyTherefore, your balance earns interest at the end of each day.

The typical monthly student loan payment is noisy Federal Reserve. During this indulgence period, you can use that extra $ 200 each month to make a bump in your body Credit card balance. Given the additional eight months of relief through September 2021, this will free up between $ 1,600 and nearly $ 2,400 (depending on your monthly federal loan payment) that can be used for other debts.

“During this extended deferral, anyone who also owes credit cards must pay them off as much as possible,” he says Gordon Achtermann, a Virginia-based CFP. “After that, build yours Emergency fund so that you have a hassle-free adjustment if the student loan payments start again at some point. “

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Given your debt repayment priorities, now may be a good time to start one Credit transfer credit card. Just make sure you have a clear debt settlement schedule so you can take advantage of the introductory zero interest period for as long as it lasts. Also note that most prepaid transfer cards require a minimum good credit.

The Citi Simplicity® card has No late fees whatever and 0% APR for the first 18 months for balance transfers and new acquisitions (afterwards 14.74% to 24.74% variable annual interest). If you have fair balance, you may have a better chance of getting approved for a balance transfer card like this Aspire Platinum Mastercard®and offers zero interest for the first six billing cycles for balance transfers and new acquisitions (8.15% to 18.00% variable annual interest thereafter).

What Borrowers Should Do If Not Worried About Their Finances

Unless you have high-interest debt and you have an emergency fund, consider continuing to make your student loan payments.

If the interest rate is set to zero for the duration of the payment hiatus and the interest waiver, any payments you make on eligible federal student loans will be completely reduced to the balance.

“This will help borrowers to repay their loans faster,” says Kantrowitz.

This 0% interest period may give some borrowers the option to repay their loans in full (depending on how aggressively you can afford it). Even if you have a sizeable balance that’s not going to easily pay off over the next eight months, use that time to move forward and see how your monthly payments go on, he says Bruce McClary, a spokesman for the National Foundation for Credit Advice (NFCC).

McClary also suggests using this time to see what refinance private lenders are offering so that you know your options when the payment hiatus ends. If you pay back your loans significantly from now through September, there may be a small enough balance left to benefit from at that point.

“It might be a good time to see what a more competitive rate could do to save money while easing your budget,” says McClary. “Even if you don’t act now … it never hurts to compare what you have with what is available in the market.”

Please note that when refinancing with a private lender, you deregister from federal protection. These safeguards include the ability to qualify for income-based repayment plans, forbearance in economic hardship, and possible federal loan forgiveness.

“Zero interest on a federal loan is the lowest interest rate borrowers can get,” says Kantrowitz. “There is no compelling reason to refinance a federal loan that qualifies for the payment break and the interest waiver into a private student loan until the payment break and interest waiver expire.”

Bottom line

If you are still struggling financially with the economic fallout from the pandemic, you should use those next eight months to deal with higher priority bills or your more expensive debts like outstanding credit card balances.

Although the federal student loan grace period has been extended, nothing can be certain beyond September 30, 2021, Hornsby notes. Payments will resume at some point in the not-too-distant future, and it is likely that student loan borrowers will have to start repaying again on October 1, 2021.

“The majority of borrowers just need to enjoy the increased savings or additional payments on other types of debt and be ready to start making payments again in the fourth quarter of 2021,” says Hornsby.

Information about the Citi Simplicity® Card and Aspire Platinum Mastercard® has been collected independently from CNBC and has not been verified or provided by the issuer prior to publication.

Editor’s note: The opinions, analyzes, ratings or recommendations expressed in this article come exclusively from the Select editorial team and have not been reviewed, approved or otherwise endorsed by third parties.

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