What to do with your money while student loan payments are frozen

President Joe Bien recently extended the student loan payment freeze to May 2022. Local financial professional Barry Bigelow from Great Waters Financial explains what this extension means for borrowers.

President Biden announced federal student loan payments will remain on hold through May 1st, 2022. The hold was originally set to expire January 31st. Bigelow says federal student loan payments have been paused meaning those in the repayment phase of their loan are not required to make their regular payments. Also, their balance is not accruing interest at this time. Adding that the freeze is meant to bring financial relief to more than 40 million student loan borrowers still navigating the financial impact of the pandemic.

Bigelow says that our national student loan debt has soared over $1.7 trillion. More than half of students have to borrow money for college, and their average student loan debt in 2020 was nearly $38,000.

Student loans aren’t just a young person’s problem. Bigelow told us that older Americans are taking on student debt even faster than their younger counterparts with more than 3 million Americans over 60 years old paying off student loans.

According to Bigelow, the average student loan debt for those in their 50s and 60s is more than $30,000. This is a big concern for those near or in retirement, who may have to pay off student loans while living on a fixed income.

Here’s what Bigelow suggests student loan borrowers do in the meantime:

Make Your Payments
• It’s important to note these extensions are meant for those who are financially struggling to help keep their head above water.
• If you are able to, keep making your student loan payments. You don’t want to be hit with a late payment fee, or worse, go into default. You can set up an automatic withdrawal to avoid missing a payment. Many servicers will give you a small interest rate break for setting up autopay.
• If you are struggling financially, consider taking advantage of the freeze.

Focus on the Future
• Grads will regret it later on if they put off saving for retirement until they’ve paid off student loans.
• Saving early – even if it’s just a small amount – is crucial because it allows money to grow through compounding interest.
• We recommend saving at least 10% of your salary in your employer-sponsored 401(k) plan. If you can’t manage that, consider contributing at least enough to get the company match.

There’s also a push for President Biden to cancel thousands of dollars in student debt. Bigelow says some on Capitol Hill have called for the president to relieve up to $50,000 in student loan debt per borrower. President Biden has also proposed canceling up to $10,000 of federal student loan debt per person regardless of their income. Bigelow added that there has been no real movement on either of these suggestions.