Americans young and old alike have suffered economic stress in the wake of the COVID-19 pandemic. Even those who still have a job are feeling the tightening vice grip of bills and other monetary burdens. Thankfully, the federal government is offering some relief to its citizens under the CARES Act. In a memorandum released in March, the president announced the plan for student loan relief.
Trump’s Memorandum for Student Loan Relief
Earlier this year, President Trump declared the coronavirus pandemic a national emergency. The federal government then put together a contingency plan to relieve the immediate financial strain to those most severely impacted by COVID-19. It publicly recognized how the pandemic had disrupted the lives of Americans in significant ways. Additionally, it implemented policies to delay debt repayment until economic activities can resume as normal.
Therefore, on March 20, 2020 the federal government enacted a relief program to suspend loan payments. A crucial part of the plan was temporarily setting 0% interest rates on these loans. The goal of these measures was to help borrowers remain financially stable through these tough times. The memorandum issued to the Secretary of Education originally set the deferment for 60 days, due to expire on September 30. However, conditions have not improved. In fact, some economists argue that the economy is more unstable now.
Extension of Federal Student Loan Relief
Six months later, many still remain unemployed or find themselves working less hours for lower wages. Moreover, additional relief packages have been held up in Congress. The worst of it is that no one can agree how to move forward as bills come due. In an attempt to bypass stalled negotiations and offer immediate financial relief, another executive order was signed to deal with the gridlock. This one simply extends the current policy until the country has become economically stable and schools have reopened. Therefore, student loan payments and interest rates have been waived through December 31, 2020.
Paying Down Your Principle on Loans vs Credit Cards
It is important to remember this is not debt forgiveness, only temporary relief. You must eventually pay off your what you have borrowed. Although payments have been deferred, you can still make loan payments and take advantage of the situation. If you have enough cash reserves, now is a good time to pay down the principles and avoid future interest payments. It can accelerate your repayment plan, and lower your balances. This means lower future interest rates when the extension expires, saving you even more in the long run.
However, survival is key through these economic hardships. If you don’t have an emergency fund in place, you should focus on creating your safety net while you are still employed. As a general standard, you should set aside 3 to 6 months’ worth of wages in case you lose your source of income.
If you find yourself in the unfortunate situation of paying off both student loan and credit card debt, it’s best to prioritize the debt with the high interest rates. I find myself firmly placed in this last boat. I am paying down the principle on credit card debt during this temporary reprieve. The hope is to focus on my short term goal of eliminating these higher interest debts while there is no interest accruing from student loans. Ultimately this will get me closer to the long term goal of becoming completely debt free.
Read More
- How to Save on Your Student Loan Debts
- How to Handle Debt: 5 Helpful Debt Management Tips
- Your Unpaid Student Loan Could Cost You Your Tax Refund
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.