Editor's note: This story was originally published on Aug. 11, 2020.
On Aug. 8, 2020, President Donald Trump signed a series of executive orders and memoranda, bypassing stalled negotiations in Congress and calling for an extension in pandemic relief for tens of millions of Americans.
One memorandum — arguably the least controversial — orders Secretary of Education Betsy DeVos to continue deferring federal student loan payments through the end of the year with no interest accrued during that time. This is a three-month extension of the student loan relief policies under the CARES Act, which are set to expire on September 30.
Though the continuation of relief would allow borrowers to put off paying for their student loans with no penalty, it's important to remember, eventually you'll have to pay back your debts.
"One thing people need to keep in mind is that a suspension of payments is not the same as debt forgiveness," says Bruce McClary, a spokesman for the National Foundation for Credit Counseling (NFCC).
Select spoke to three experts for their best advice if you're trying to figure out what to do with your student loans now that the deferment period may be extended through the end of 2020, granting you three more months of no payments.
1. Pay into the principal
Before you start (or continue) deferring your federal student loans and prolonging your debt, consider taking advantage of this long zero-interest period, especially if you're still employed, you have an emergency fund and no credit card debt.
The extended federal loan deferment could be an opportunity for borrowers to accelerate their payoff progress, argues McClary. With interest waived, any payments you make during this time will go directly toward chipping away at the principal. So, when your payments do eventually resume, interest will collect on a lower balance and your overall debt load will be smaller.
"The suspension of interest on federal student loans makes those payments even more impactful," McClary says. Plus, the earlier you can pay off your student loans, the better.
2. Focus on building an emergency fund
If you have no cash stashed away, keep your student loans on hold during this postponement period and focus on saving.
Higher-education expert Mark Kantrowitz argues that the extended student loan pause gives borrowers who still have a steady income the chance to put the extra money that would have otherwise gone to paying student loans toward an emergency fund.
The first priority for borrowers who are still employed during the pandemic should be to build a safety net, he says, especially given the uncertain economic future. "They might still have a job, but who knows what might happen in a month or two?" Kantrowitz tells Select.
The general rule of thumb is to set aside three to six months' worth of your living expenses. If you've put your federal student loans on pause, transfer the amount you usually pay each month into a savings account earmarked for your emergency fund. Consider depositing this extra cash into a high-yield savings account online that charges no added fees and has a higher interest rate, such as Ally Online Savings Account, Marcus by Goldman Sachs High Yield Online Savings or Synchrony Bank High Yield Savings.
3. Prioritize paying down credit card debt
If you have both credit card and student loan debt, you should take advantage of this extended student loan deferment period to focus on paying off your credit card balances.
Because credit cards come with notoriously high interest rates when you carry a balance, Kantrowitz suggests using this break from your monthly student loan payments to prioritize paying them off.
Kaya Ladejobi, a New York-based certified financial planner, agrees with Kantrowitz on what she calls "the financial order of operations." First, make sure you have a savings safety net during this unprecedented time and then focus on paying off the debt with double-digit interest rates.
As you're reconsidering your debt repayment priorities, now might be a good time to open a balance transfer credit card, so you can pay off your debt even faster since you won't be paying high interest charges on your existing balances.
The Citi Simplicity® Card has no late fees whatsoever and 0% intro APR for the first 21 months from date of first transfer on balance transfers and 0% intro APR on purchases for 12 months from date of account opening (after, 18.99% - 29.74% variable APR; balance transfers must be completed within four months of account opening). There's an introductory balance transfer fee of 3% or $5, whichever is greater for transfers completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
The U.S. Bank Visa® Platinum Card offers a longer introductory 0% APR for the first 18 billing cycles on both balance transfers and purchases (after, 19.49% - 29.49% variable APR). Balances must be transferred within 60 days from account opening. Just keep in mind that balance transfer offers today are harder to come by and most usually require having good or excellent credit to qualify.
If you do open a balance transfer card, make sure you have a clear debt pay-off plan, so you don't end up back where you started, paying high interest rates on your balance.
For student loan borrowers who are struggling
If you're out of work because of the pandemic, or you're just feeling more financially strained, focus your resources right now on your most urgent necessities and take advantage of your student loans being deferred longer, McClary says.
This means putting any extra money toward your high-priority bills that impact your survival, like housing and utilities. Once you get your feet back on the ground, you can then start using that cash in different ways.
The proposed extension of deferring student loan payments is only for federal loans, but if you're worried about private student loans, contact your loan servicer to ask for a forbearance period or other options for financial relief.
"At the end of the day, each person will need to examine their goals and current financial standing to determine what their next immediate financial priority should be," Ladejobi tells Select.
Goldman Sachs Bank USA is a Member FDIC.
Information about the Citi Simplicity® Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
