A great sigh of relief for many individuals wondering how they are going to pay their student loans during this time. The new CARES act includes a deferral for six months on federally backed student loan payments and interest. This deferral poses the same planning opportunity for people as the original 60-day deferral. A person with federal loans that qualify could apply for the forbearance (if an application is needed, check with your loan servicer), and do one of two things:

  1. If you need the extra cash-flow right now, you could skip student loan payments until after September 30th (if you are eligible). The flipside to this is strategy is that your loan payments will extend for an additional six months on the tail end of the life of the loan. You also lose the opportunity to pay down the loan principal during this 6-month interest-free grace period.
  2. If you are financially able, we highly recommend taking your regular monthly payment each month, or even partial payment, and put it in a savings or low-risk investment account. Come September 30th, or whatever date the interest forbearance ultimately expires, that money can still be paid towards the loans with a lump sum payment by September 30th. This option allows you to stay in the same position as if you paid each of the six months’ payments, but still hold onto the cash from the payments in case it becomes needed before the interest forbearance ends. You can also start with this second tactic and switch halfway through if needed.  

Where to Start

Contact your loan servicer to confirm if your loans qualify for the relief and if any action is needed to obtain forbearance from payments. Many servicers have the required information on their website, and you can log-in and check if your loans qualify. Review your cash flow for the next six months and determine which approach makes sense for your financial situation.