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Should I Stop Paying My Student Loans While Interest Rates Are 0%?


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If you’re like me, the student loan payment pause is a huge burden off your shoulders. Even enrolled in an income-driven repayment plan, I typically have to pay nearly $700 per month on top of all the other typical monthly expenses. And as a parent with a little mouth to feed, it’s a lot.

But just because the payment pause sounds like a good deal doesn’t necessarily mean it is. Should you take advantage of the administrative forbearance to free up room in your budget or keep making progress on your student loans? 

The answer depends on your individual goals and circumstances.


Should I Stop Paying My Federal Student Loans While Interest Rates Are 0%?

Payments and interest for most federal student loans are on hold until Aug. 31, 2022. This administrative forbearance means you don’t have to make payments on your eligible loans until September. And your loan balance isn’t growing while you’re deferring repayment.


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That’s an enticing reason to stop paying. But there are several things you should consider before opting for the automatic payment suspension. 


Reasons to Make Optional Student Loan Payments

Although no one likes to pay bills, especially when you have permission to keep money in your pocket, there are a few reasons it could be more financially beneficial in the long term to keep making payments on your student loans. 

1. You’ll Pay Your Loans Off Faster

You won’t rack up (accrue) new interest on your student loans during the payment pause since the interest rate is 0%. So once you’ve paid any interest that accrued before the start of the suspension on March 13, 2020, any payments you make toward your student loans go directly toward the principal balance.

That can help you pay off your student loans faster

For example, let’s say you borrowed $40,000 in student loans at 5% interest. If you continued to make your monthly payment of $424 (what it would be on a standard 10-year repayment schedule) during the two-year payment pause, you’d have your loans paid off six months earlier than scheduled.

On the other hand, if you stop paying on your loans, you’ll be paying on your loans two years longer than you otherwise would have. 

2. You’ll Pay Less Interest Over Time

If you continue making payments during the suspension, you won’t pay any new interest on your loans. That will reduce your repayment term and the overall cost of your loan. 

For example, if you borrow $40,000 at an average 5% interest rate, over a standard 10-year repayment schedule, you’ll repay nearly $11,000 in interest. If you stop making payments during the payment pause, that won’t change. It will just delay repayment.

But if you continue to make the same monthly payments (assuming you’ve been making them since March 13, 2020), you could shave over $2,700 off that total.

3. You Don’t Have to Make the Full Monthly Payment

Since you aren’t required to make any payments at all during the payment pause, you can still make progress on your loans by sending a smaller amount than your regular monthly payment.

Plus, since you won’t have a due date, you can send money as you’re able. And since the interest rate is 0%, any amount you send will go directly toward the principal (unless you have back interest racked up), reducing your balance faster than if part of each payment had to go toward paying interest. 


Reasons to Pause Your Student Loan Payments

Although continuing to make payments on your student loans during the payment pause might help you make progress toward paying them down, there are plenty of good reasons to hold off.

1. You Can’t Spare the Money Right Now

The first payment suspension was part of a government package intended to provide relief for Americans dealing with the economic impact of the coronavirus pandemic.  

Since then, many Americans have had their lives radically altered. They have lost jobs, taken on work with lower pay, taken on high medical debt due to severe infection, or become a single-income family to manage child care and remote schooling.

On top of that, supply chain disruptions have caused inflation to soar to record highs not seen since the early 1980s. It’s enough to break many people’s already tight budgets.

If that describes you, there’s absolutely no reason to pay your student loans. Since they’re not accruing any interest, you don’t have to worry your balance is growing while your loans are in forbearance. And that frees up your hard-earned cash to go toward more crucial priorities like rent and groceries.

2. You Want to Focus on Other Financial Goals

If you have wiggle room in your budget, there might still be a good reason not to pay down your student loan debt while the interest rate is 0%. You should generally prioritize investing over debt payoff when the interest on your debt is less than 5%.

That’s because the average historical stock market return is 10%. Thus, if you took the money you’d ordinarily pay toward your student loans and instead invested it in a retirement account like a Roth IRA or into an exchange-traded or mutual fund, you’d get far more from your money.    

For example, if you borrowed $40,000 at an average 5% interest rate and kept making payments during the administrative forbearance, you’d save over $2,700 over the course of the two-and-a-half-year interest-rate suspension.

If you invested your $424 per month payment instead, over two and a half years, you wouldn’t earn much in interest immediately — potentially about $1,000, depending on how the market performed. 

But the magic of investing works over the long term. If you leave your money in the market, even if you never add another cent to it, in another 25 years, you could have over $148,000 if the market returns the historical average. 

Now compare your $148,000 (a net gain of over $135,000) to merely saving $2,700 in interest on your debt payoff strategy. And that’s if you never added another dime to your retirement fund after you resumed paying student loans. It would be much higher if you kept contributing.

3. You’re Enrolled in an Income-Driven Repayment Plan

If you enrolled in an income-driven repayment plan before the administrative forbearance, there’s no advantage to making payments on your student loans. Every month of the payment pause counts toward eventual student loan forgiveness. 

Thus, participating in the payment pause is like having multiple years automatically shaved off your forgiveness clock.

The administrative forbearance also has other impacts on income-driven repayment plans. Borrowers can self-certify their income through Feb. 28, 2023, when applying for or renewing their enrollment in an income-driven plan. 

That means you won’t have to submit income documentation or your tax return. But you will need to select the option “I’ll self-report my own income” in step No. 2 (income information) of the income-driven repayment plans application. You can also self-certify by phone.  

Additionally, if you enrolled in an income-driven plan before the payment pause and were supposed to recertify your income before Aug. 31, 2022, you now have extended time to do so. The government has extended income-driven plan recertification dates to at least March 2023. Your servicer will notify you when it’s time to recertify.

In the meantime, if you’ve experienced a change in income, especially a reduction in income, you can recertify sooner. Since income-driven repayment plans are based on your current income, your monthly payments will be smaller once the administrative forbearance ends.

And if you’re not currently enrolled in an income-driven repayment plan and you anticipate hardship repaying your student loans once the payment pause ends, now is an ideal time to enroll. 

You can apply online at StudentAid.gov or by contacting your student loan servicer.

4. You’re Working Toward Public Service Loan Forgiveness

Under normal circumstances, you must make full payments on your student loans for them to count as one of the 120 payments required to have your loan balance forgiven under the Public Service Loan Forgiveness Program

However, to be eligible for public service loan forgiveness, your loans must be in an income-driven repayment program. Thus, the same basic rules apply during the administrative forbearance: All the months your loans spend in forbearance count toward your forgiveness clock, even though you’re not making payments (as long as you continue to work for a qualifying employer).

Thus, making payments on your student loans during the forbearance won’t help you make progress on your loans. So paying on them would be like throwing money away.

Note that separate from the payment pause, the program is also undergoing reforms. That includes a temporary waiver that allows all past “payments” (including partial payments, periods of deferment, and forbearance) to count toward the forgiveness clock. It also allows forgiveness to apply to all federal student loans enrolled in any payment program. 

The only requirement is that you must have been working full-time for a qualifying employer (a public agency or registered nonprofit) during the period for which you’re seeking credit for past payments.

The temporary waiver expires on Oct. 1, 2022. Visit StudentAid.gov for more information.

5. You Have a Small Amount of Student Loan Debt

While many policymakers have called on Congress and President Joe Biden to cancel some amount of student loan debt, ranging from $10,000 per borrower to all student loan debt, it’s unlikely at this point such forgiveness will happen.

Though Biden pledged to cancel up to $10,000 of student loan debt per borrower on the campaign trail, he has repeatedly called on Congress to pass a bill for him to sign. But Congress has had many opportunities to include student loan forgiveness in legislative relief packages and has yet to do it.

Thus, if you were waiting to hear if student loan forgiveness will happen before you make payments on your loans, you probably shouldn’t hold your breath. Unfortunately, your loans are likely to be waiting for you when the suspension ends. 

However, there is still a very small chance some amount of forgiveness could happen. It ain’t over ‘til it’s over, as they say.

So to ensure you don’t accidentally throw away your money, you can always stash the amount you would have otherwise put toward your loans in a savings account. Then, if the pledged $10,000 of forgiveness does happen, you’ll have built up a nice emergency fund.

And if it doesn’t happen, at least you won’t have lost anything. Your loan balance won’t have grown. So you can take the money you set aside and make a lump-sum payment against your highest-interest loan when repayment begins. 

To make the most of your payment, select to have it go toward the principal. That will give you a little extra boost to get rid of the debt faster.


FAQs About the Student Loan Pause

Not all student loans are eligible for the payment pause. And the pause impacts some loans differently. If you have questions about whether your loans qualify or how the pause affects your loans, check these frequently asked questions for the answers. 

What if My Loans Are in Default?

In April 2022, the government announced all federal student loans with delinquent payments or default status will return to good standing when the payment suspension ends on Sept. 1, 2022. 

Normally, to get out of default on student loans, you must either get on an income-driven repayment plan or go through student loan rehabilitation, which is unaffordable for most borrowers in default.   

It’s especially good news for those who were delinquent on their payments. The federal government has extraordinary powers to collect on defaulted student loans. That includes the ability to seize your tax refunds and Social Security benefits, place claims against your property, and garnish up to 15% of your wages without having to sue you first. 

Can My Student Loan Servicer Still Try to Collect During the Payment Pause?

No, all collection activities are suspended through Aug. 31, 2022. You’re even eligible to receive a refund of any forced student loan payments made since March 13, 2020, the start of the payment suspension. And no collection activities will resume until six months after payments restart. 

Is There Any Point to Rehabilitating My Loans During the Pause?

If you want to start the process of rehabilitating your loans, doing so during the payment pause is ideal. You can get credit toward rehabilitation for each month during the administrative forbearance (starting after you begin your rehabilitation agreement) — even without making a payment.  

Visit StudentAid.gov to apply.

What If I Have Private Student Loans?

Unfortunately, the suspension on student loan payments and interest is only for federal student loans. The government has no authority over private student loans. 

However, your private student loan lender may offer some type of relief if you’re struggling to make your payments. Many lenders offer structured deferment or forbearance plans for economic hardship, although the terms and conditions vary significantly from lender to lender.

You must contact your lender directly to apply for individual private student loan relief since no private lender is offering an automatic payment pause. 

What if I Have Non-Government-Owned FFEL or Perkins Loans?

If you have Federal Family Education Loans (FFEL) or Perkins loans, you’re only eligible for the payment pause if the government owns your loans (through consolidation, for example). However, private lenders and schools provided these funds. While schools may elect to pause Perkins loans, you’ll have no such luck with private lenders and FFEL loans.

You can find out who owns your loans by logging into StudentAid.gov. If it’s not the government, the only way to qualify for the payment pause is to consolidate them with your other federal loans. 

However, not everyone should consolidate their student loans. Talk with your loan servicer to determine how consolidation will affect your total loan balance, interest rate, and repayment term. 

What If I Recently Graduated From College?

In ordinary times, when a student loan borrower graduates, leaves school, or drops below half-time enrollment, most types of federal loans enter a six-month grace period before they must begin making payments. Normally, interest accrues during this period.

But if your grace period falls anytime during the payment pause, you don’t have to worry about payments or interest until the pause ends. If your grace period extends beyond the pause, you will begin accruing interest after that date.

For example, if you graduated on April 31, 2022, and the payment pause ends on Aug. 31, 2022, you don’t have to begin repayment until Nov. 2022. But in the meantime, you get four months of suspended interest.


Final Word

If you’re in a comfortable financial position, it’s understandable to want to tackle your debt as fast as possible. Debt can feel like a heavy burden, and unloading it makes everything lighter.

But in most cases, there are probably better uses for your money than putting it toward your student loans while the interest rate is 0%. That includes investing it or even hedging your bets by banking it until the payment pause ends. 

And if you’re enrolled in an income-driven repayment plan or work in a public service role, there’s no point in making payments since the $0 payments count toward forgiveness. 

Fortunately, you don’t have to do anything to get the administrative forbearance on your federal student loans — it’s automatic. 

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Sarah Graves, Ph.D. is a freelance writer specializing in personal finance, parenting, education, and creative entrepreneurship. She's also a college instructor of English and humanities. When not busy writing or teaching her students the proper use of a semicolon, you can find her hanging out with her awesome husband and adorable son watching way too many superhero movies.

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