Biden Freezes Student Loan Payments Again – What Should You Do?

Though the last student loan extension was supposed to be final, the student loan pause has been extended once again by 90 days to May 1 2022 offering more “breathing room” for those with student loans. The pause includes repayments, interest and collections according to the Department of Education, though further details are coming. The pause is not expected to impact progress to Public Service Loan Forgiveness (PSLF).

Loan Freeze For 90 Days

Though the student loan freeze deadline has been extended in the past, payments do seem likely to resume in 2022 because the unemployment rate is now 4.2% marking a significant and rapid rebound from the covid-driven unemployment spike. Though the growth of the omicron variant in the U.S. may increase uncertainty, and this is generally a politically popular policy that both the Trump and Biden administrations have supported.

What To Do?

Generally, getting out of high-cost debt is an important step on the ladder to starting saving and building wealth. However, student debt is typically relatively low interest similar to a lot of mortgage debt and can be quite flexible.

The interest rate on credit card debt and many personal loans can be far higher and potentially hard to dig out of. Therefore, rushing to pay off a student loan using the current payment pause, may be less effective than repaying other forms of debt.

That’s especially true if the rules should change again. Therefore, if you do have the ability to make your repayments during the freeze you may want to think twice. Also, forgiveness rules do mean that rushing to pay down student debt may be counter-productive.

Checking Your Options

Here are some considerations if you are planning to continue to make repayments during the freeze when you aren’t required to. Firstly, check to make sure that you don’t have other higher interest debt that might be better to pay down first. Repaying that other debt may put you in a better position in the long-run.

Secondly, even if you are tempted to pay down your student debt during the pause, it may be better to put those payments into a checking account for now. That keeps your options open.

Of course, you can still make those payments in May 2022, when payments resume if there aren’t further changes. However, be careful with those funds. It might be tempting to invest those funds in the stock market given the strong recent momentum, remember the stock market can fall sharply too, so using a checking account for money earmarked for debt repayment may be prudent.

Waiting Until May 2022

If come May 2022 the rules or your circumstances do change, then by waiting, you retain flexibility. For example, while broader programs for student loan forgiveness remain a topic of political discussion, paying down your loan early may be a financial decision that you come to regret. For example, this could happen if you pay down debt that would have been forgiven, either due to a policy change or a change in your circumstances.

So today’s new is good for many people with student loans, but May 2022 may see the real end of the payment freeze after multiple extensions. Waiting for May 2022 may be best option for those with student loans, even if you are able to make payments during the pause to pay down your loan potentially faster. It’s possible the rules change again, perhaps with another payment freeze, or your situation could change over the next 90 days too. Waiting and seeing during this pause may be prudent.