Blog

Should You Make Student Loan Payments During Forbearance?

March 4th, 2021

Should You Make Student Loan Payments During Forbearance?

Good news for those with federal student loans – due to the pandemic, relief from loan payments, also known as forbearance, has been extended through September 30, 2021. This means no payments will be due and no interest will accrue for federal loans during this time. This is great news for those with these loans, but if your financial situation hasn’t changed and you’re still able to make your loan payments – should you?

Everyone’s situation is different, so TopLine and LSS Financial Counseling are here to help you look at a couple scenarios where you should be thinking about continuing your loan payments and some where you shouldn’t.

Benefits to Continuing to Make Payments:

  • Pay it off faster. Without interest accruing, 100% of your payment goes toward the principal loan balance. If you want to pay down your loan even faster, consider making slightly higher payments right now.
  • Bring your loans current. If your loans were past due before the forbearance period, they are still reporting past due. Bringing your loans current will help you improve your credit score. If you’re unable to make ongoing payments, just paying the past due amount will help.
  • Rehabilitate defaulted loans. If you’re in default, now is the perfect time to rehabilitate your loans. The payment and interest relief include defaulted loans. This means you will get credit for your payments, but you don’t have to pay through at least September 2021. If you can make payments, 100% will go toward the principal balance.

Who Benefits to Not Making Payments:

  • Borrowers seeking loan forgiveness. During forbearance, you’re getting credit for payment. Making payments won’t help you meet the required number of payments faster. However, should something happen to make you not qualify for forgiveness in the future, you’re not reducing your loan balancing without making payments.
  • Borrowers with reduced income. If you have temporarily reduced income and cannot afford to make your student loan payment, focus on your priority expenses such as food, housing, utilities, transportation and medical expenses. Reduce spending wherever possible. Also, if you’re having trouble keeping up on your housing payment, car payment, utilities, etc., contact the company/lender. Let them know of your situation and see if there are any options.
  • Borrowers without an emergency fund. Consider building your savings first. Once you meet your savings goal, resume payments. For instance, if you have no money in savings and your student loan payment is $200/month, set aside that payment amount in savings while the loan is in forbearance. If you star in February, you’d have $1,600 in savings by the end of September!
  • Borrowers with other debts. If you have other debts with higher interest rates, large monthly payments, or one or two with small balances that are close to being paid off, consider paying extra toward one of those debts while your loans are in forbearance. Once you’ve paid off those other debts, add those payments to your student loans, helping you pay them off faster and save money in interest. If you need to get rid of a monthly payment, it’s best to start with the smallest debt. If you want to save more money in interest, then start with the debt that has the highest interest rate.

Being a TopLine member gives you and your family access to up to six (6) free private and confidential financial education counseling sessions annually with a certified consumer credit counselor from LSS Financial Counseling. Sessions are available by phone, in-person or online. Contact LSS today for your free financial education session at 1-800-528-2926 or visit LSS online and mention you are a TopLine member.