With the Biden administration's student loan forgiveness plan tied up in the courts, the government is again extending the repayment pause that's been in effect since March 2020. But for many borrowers, the smart move would be to make payments anyway.
Biden's plan is to forgive $10,000 in student loans for single borrowers who make $125,000 or less and married couples and heads of households who make less than $250,000. The amount of forgiveness will be $20,000 for Pell Grant recipients. While the latest pause could mean you won't have to make payments until late August 2023, making payments on balances exceeding the forgiveness amount in the meantime can save you a lot of money.
"If you have student loans, you should start paying them down, but consider leaving that last $10,000 or $20,000 until the court cases work themselves out," said Jay Zigmont, a CFP® professional and founder of Childfree Wealth. "The bonus of paying your loans now is that the entire payment is going to the principal. If you are down to your last $10,000 of loans, consider putting the payment into a savings account that can either be used or put toward the loan once we have an answer on forgiveness."
.....Typically, when you make payments on loans, you're not only paying down the balance of your debt but also the interest on your principal. This can occasionally lead to borrowers who make on-time payments actually having their loan balances go up because their payments only cover a portion of interest and don't reduce the principal at all.
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