How Repaying Student Loan Payments Could Add Pressure Next Year
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What is the student loan payment deferment and when does it end?
Here's your money briefing for Monday, October 26th. I'm J.R. Whalen for The Wall Street Journal. There were stimulus checks and small business loans, but another way the government tried to help Americans at the height of the pandemic was to allow people to defer student loan payments. The program started in March, but it's running out at the end of the year.
You have about two months now, or most people have about two months, in order to get their plan to resume payments in order. And the first thing you need to do is make sure that you have enough money. Should you lose your job? Should you have another emergency? You have enough money saved from not making these payments to rely on.
We'll hear from personal finance reporter Julia Carpenter about what financial advisors are recommending and from someone who used the deferment to improve his financial situation. That's after the break.
Deferment on student loan payments was a much needed reprieve for borrowers hurt by the pandemic. But the end of that deferment period is coming on January 1st. Personal finance reporter Julia Carpenter has been checking in on both borrowers and financial advisors as the day approaches. Julia, thanks for being with us.
Thank you again for having me.
So, you know, six months ago, people got forbearance on their student loan debt. Looking back, what were you hearing from some of the borrowers you spoke to?
When I spoke with borrowers, I heard a couple of different things. I think some people stopped making payments and took that opportunity because they'd been financially impacted by the coronavirus. They either lost work or they'd lost their job and they needed this to make ends meet. I spoke with other people who paused their payments because they took it as an opportunity to use that money for other things. Either they were using it to pay down other debts or they were using it for savings to kind of safeguard against the circumstance that that first group found themselves in.
Who is affected by the end of the deferment and what immediate steps should borrowers take?
And student loans aren't the only debt that they're trying to manage.
I spoke with one advisor who said that he's been telling people to look at their highest interest debt and take that money that you would have used to pay your student loan and use it instead to pay for your car payment or to handle a very high interest credit card, something that's going to be growing much more quickly because in the period that we're in now with the student loan forbearance, we've had a pause on interest accrual. So it's not as urgent as some of these other obligations.
But some people are using the deferment to increase their savings. You spoke to Chris Strong. He's 26 and a transportation engineer in Atlanta. He owes about $20,000 in student debt. Chris, thanks for being with us. What made you decide to put the extra money away?
I had started off 2019, just moved out of my parents' house. I was living by myself. I was paying for rent. I was paying for a car. And I didn't really have much savings. You know, I love to travel. So I found myself saving to take trips, but I became more interested in personal finance. And I started seeing all these rules around the Internet saying, you know, you should have three months or six months, 12 months. Some people have even more than that. And I took a look at my finances and all I had were some savings for, you know, renter's insurance or anything else along the way that I might need to pay for. But I did not have any long term savings. So actually towards the end of 2019 and before the pandemic, I set that for one of my goals for 2020 to build up my emergency savings in the unfortunate event that if I did lose my job, I wouldn't be reeling and financially in a bad spot.
Now, during the forbearance period, have you been able to pay down some of your loans?
I was. I started off the beginning of the forbearance period actually paying a little bit extra on my student loans for a couple of months. And just due to the nature of the situation and all the different bits of financial advice flying around out there, I started to actually sock away some of that money after making those extra payments, just based on the advice that something like this would likely never happen again in the next probably seven or eight years left that I had to pay down my student loans.
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