Should you still pay student loans? What experts say as Democrats weigh forgiving debt
President Joe Biden extended the forbearance period on federal student loans through September, and he supports canceling $10,000 in student loan debt per borrower. So does that mean you should stop making payments now?
The CARES Act, passed in March 2020, suspended student loan payments and waived interest until September, and former President Donald Trump’s administration extended the period until Jan. 31.
Biden then directed the Department of Education to extend the suspension of payments and interest until Oct. 1.
The pause covers about 85% of federal student loans, according to CNN.
Betsy Mayotte, president and founder of the Institute of Student Loan Advisors, a nonprofit group, told The New York Times in October that borrowers should continue to make payments during the suspension if they can.
Because the payments are being delayed and not forgiven, continuing to pay will decrease the amount you’ll have to pay in interest once repayment begins again, Mayotte said. People might also have trouble restarting payments after a months-long reprieve.
“One big indicator of repayment success is getting in the habit of doing it,” Mayotte said.
Whether you should continue making payments can depend on your situation and the amount of debt you owe, said Scott Snider, a partner at Paragon Wealth Strategies, Money reported.
The average borrower has about $35,000 in student loan debt, and about 15 million borrowers owe less than $10,000.
For those who have lower-than-average debt, Snider said it wouldn’t hurt to wait out the suspension and see if your debt gets forgiven.
“It’s not costing you anything to wait. Until it starts costing you money, I would wait to see what happens,” Snider told the publication.
However, for those who owe six figures in student loan debt, Snider recommends taking advantage of the zero-interest period to pay off your loans. “I would make as much headway as you can right now,” he said.
In addition to federal loans, some people may also have private student loans, which don’t have a forbearance period during the pandemic. Some lenders may be willing to give you leeway on your payments, but that would be on a case-by-case basis.
Bankrate, a personal finance company, recommends that borrowers keep making payments if they have private loans and to consider refinancing them while interest rates are at an all-time low.
If you have federal student loans, Bankrate says you could use that money for a savings account or to pay for other needs during the pandemic.
Where do things stand?
Other Democratic lawmakers have also advocated for canceling federal student loan debt.
On Feb. 4, Senate Majority Leader Chuck Schumer of New York held a press conference calling on Biden to forgive $50,000 in student loans per borrower through executive action. Schumer was joined by Democratic Sen. Elizabeth Warren of Massachusetts and Reps. Mondaire Jones of New York, Ayanna Pressley of Massachusetts, Ilhan Omar of Minnesota and Alma Adams of North Carolina.
Americans owed more than $1.7 trillion in student loan debt in the fourth quarter of 2020 — an uptick of about 4% compared to the same period the prior year, according to The Federal Reserve.
Canceling $50,000 in student debt would reduce that balance to $700 billion, CNBC reported. It would mean 80% of federal student loan borrowers — 36 million people — would be completely free of federal debt, higher education expert Mark Kantrowitz told the publication.
This story was originally published February 10, 2021 at 10:11 AM with the headline "Should you still pay student loans? What experts say as Democrats weigh forgiving debt."