Should you still be making student loan payments during the moratorium?


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The shocks of the pandemic continue to impact the economy, although some rebound has been observed. The stay has come in the form of sets of congressional laws that have alleviated some of the difficulties with moratoriums on certain payments, from mortgages to loans. University students on federal student loans were given a temporary stay on their payments, relief that was extended until January 31, 2022 (private loan holders are still required to pay). With the end of the moratorium in sight, should Gen Z continue withholding payments or start paying? GOBankingRates aims to help students determine which path is right for them.

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First, know your loan

According to LJ Jones, financial planner and founder of Developing Financial LLC, the choice of whether to keep paying or not depends entirely on the type of student loans an individual has.

For those with an income-based repayment plan, he urged people to “make sure that each month they receive credit for their payments even if they are at 0. This includes those who are working on the payroll. cancellation of public student loans “.

“If the individual is on a standard 10-year repayment schedule, then it’s a matter of preference for the individual. For those who don’t like the idea of ​​having debt, they can make payments. In doing so, they will make significant progress on their loan balance by making payments during the moratorium, ”he said.

For those who are truly eligible for the moratorium, it encourages them to invest the money they save, or at the very least to put it in an interest-bearing savings account: it is better than paying off a debt with a rate 0% interest.

Advice: What to do if you can’t afford your student loans

Keep paying off your loans to improve your credit score

There is no doubt that not having to make a student loan repayment, which can be a significant amount of money depending on the amount of your loan, is a relief. It would be easy to take this relief and save money. However, according to Mike Martinez, president and CEO of M Martinez & Associates, it’s a good idea for Gen Z to keep making their payments. “For starters, debt affects your credit rating. If you pay off your student loans, your credit rating will go up. This will improve your credit score.

While a credit score might not mean much to a young person, when it comes time to buy a car, house, or anything else that matters, that score will be very important.

Did you know?: Your employer can pay $ 5,250 per year for your tax-free student loans until 2025

Keep paying loans to meet your long-term goals

Another reason to pay off student loans during the moratorium is that it reduces your long-term debt. “Student loans often make it difficult to buy your first home because it makes your debt load too high to qualify for a home loan,” Martinez explained. “The sooner the debt is paid off, the sooner you can meet other financial goals. “

Plus, if you have the financial stability to pay off your loans, Martinez suggested it has a positive impact on your mental health. “Debt can increase financial anxiety. Less debt equals less financial anxiety. Overall, having less debt can improve your mental health.

Not to mention that if you keep paying off your loans, “you won’t earn interest, so you can more easily reduce your principal balance and pay off your loans faster,” said Carter Seuthe, CEO of Credit Summit Student Loan. . Refinancing.

In depth: What Gen Z’s Future Looks Like With Student Debt Compared To Millennials

Have you decided not to make payments? Build an emergency fund or save for retirement

On the other side of the picture, there may be other financial benefits of not paying your loan for a few more months, according to Cameron Church, a certified financial planner and certified student loan professional.

“I encouraged [clients] I work with not making payments during the moratorium and using the money they would spend to fund an emergency / rainy day fund or even consider contributing to a Roth IRA or some other type of fund. ‘investment,’ Church said.

If you don’t plan on doing either of these things, he strongly urged people to put the money aside anyway: “It will be a wake-up call on January 31st. .st if you have spent the money that would normally be spent on your loans and all of a sudden you have to find a few hundred dollars for the loans.

To learn: The Standard Emergency Savings Advice Was Wrong – How Much Do You Really Need?

Collect money

If you’re in really dire financial straits, Church also pointed out a small loophole during the moratorium for federal student loans only: “Not many people know, but if you’ve made payments during the moratorium, you can go to the website. student loan and have them repay you that money. If you’re having trouble with bills or credit cards, or just need to save some cash, that money back could be a game-changer.

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Last updated: September 24, 2021

This article originally appeared on GOBankingRates.com: Should you still be making student loan payments during the moratorium?


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