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A pause in federal student loan payments that began more than two years ago will now continue through Dec. 31, President Joe Biden said Wednesday.
The extension — coming just a week before the payments were scheduled to resume — included Biden announcement on Twitter that the government will forgive up to $20,000 of federal student loan debt for borrowers who have received Pell Grants and $10,000 for everyone else. Relief is limited to individuals with incomes of less than $125,000 or, for families, under $250,000.
This is the seventh time that the government continues to freeze loan payments. It began in March 2020 under President Donald Trump, when the Covid pandemic upended the US economy, and has been renewed continuously since then.
This will be the final extension, Biden said.
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For borrowers, the deadline translates into having a few more months of extra money in their budgets – meaning it’s worth considering how best to use that money before payments resume.
If you don’t have emergency savings, it might be worth putting aside what you’re not paying back at a student loan servicer so you have a cushion going forward, said certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida.
“The first thing is to make sure you have an emergency fund,” McClanahan said.
Financial experts typically recommend setting aside at least three to six months worth of income in case of job loss or other unexpected expenses.
If you already have emergency savings, look at your 401(k) plan to make sure you’re contributing enough to get matching employer contributions, McClanahan said.
You should also look at any debt with a high interest rate – like credit cards. The average rate on that plastic is currently around 18%, which is generally higher than other forms of consumer debt, such as a mortgage or an auto loan.
“If they have high-interest debt, use this time to reduce that debt,” McClanahan said.
Otherwise, she said, “you can save it and then make bigger payments when they start again.”
More than 40 million Americans are in debt for their education, owing $1.7 trillion.
