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Should I make federal student loan payments right now? It depends

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  • Federal, direct student loans are automatically in forbearance due to the coronavirus pandemic, and won’t take automatic payments until the period ends on September 30, 2020. 
  • If your income has been unaffected, you can pay your loans during this time, but you have to call your loan servicer and make arrangements to do so.
  • Student loan expert Travis Hornsby says most people probably shouldn’t choose to pay their loans anyway, especially if you’re using an income driven repayment plan or a public service loan forgiveness program. 
  • For many middle- and low-income Americans, putting money into an emergency fund or towards high-interest credit card debt might make more sense than paying down student loans right now. 
  • If you have private student loans that don’t offer any payment relief, consider refinancing to a lower rate »

Coronavirus and rising unemployment figures have meant big changes to student loans. 

Federal student loans are automatically in forbearance right now. The forbearance, which temporarily postpones student loan payments and has dropped interest rates to 0%, started March 13 and will last through September 30, 2020.

Any federal, direct student loan borrowers should see that automatic payments have stopped, and any payments made since March 13 can be refunded by calling your loan servicer.

Loans issued through the Federal Family Education Loan (FFEL) Program, like Parent PLUS loans or Stafford loans, won’t receive automatic forbearance. Private student loans are not in forbearance — borrowers must still make payments as usual, although some lenders are making accommodations for people affected by the pandemic.

It’s still possible to make payments right now, if you have stable work and plan to repay your loans in full. Through September, any extra payments will go directly to the principal of the loan, lowering the amount used to calculate interest. Though automatic payments have been suspended on federal loans, contact your student loan servicer to make payments if you wish.

It might sound like a great opportunity to take advantage of that 0% interest and make “extra” payments on your loans, if you can afford it. But, student loan expert and founder of Student Loan Planner Travis Hornsby says for most people, now is not the time to worry about getting ahead on student loan payments. 

If you’re on an income-driven repayment plan or in a public service loan forgiveness program, there’s no reason to pay

“Please don’t make extra payments right now,” Hornsby wrote in an email to the Student Loan Planner community on April 9. 

That’s because, for anyone using an income driven repayment plan (IDR) or a public service loan forgiveness program (PSLF), paying on your student loan during the forbearance period won’t help you get ahead any faster. These programs, which both require an application process, forgive loans after a set number of months. The six months during the loan forbearance period will count toward that total for anyone on this plan, whether or not you make a payment. 

“If you were in IDR prior to March 13, any suspended payments between that date and September 30 count for loan forgiveness,” Hornsby wrote.

If you expect your loans to make it to forgiveness, there’s no reason to try and make a payment during the coronavirus-caused forbearance period.  “You don’t get gold stars for making extra payments right now,” Hornsby wrote. 

If you’re not on a repayment plan, you may still want to skip payments

Hornsby thinks most Americans would be better off paying off expensive credit card debt and building an emergency fund while student loan payments are suspended, two choices that could help protect them financially should they lose their job and income.

“A typical person, like a $30,000 student loan borrower, probably has like a middle-class income, and would probably be at a greater risk of being laid off,” Hornsby told Business Insider in a follow-up conversation.

Building an emergency fund, a savings account of several months worth of expenses, will help avoid high interest debt if you lose your income or get sick. “In the worst recession since maybe the Great Depression, when everybody’s losing their jobs, it seems smarter to hold on to some money just in case,” he said.

Plus, although many banks are offering short-term payment deferrals and other accommodations for people unable to pay their credit card bill, credit card debt is still accumulating interest right now, and balances still affect credit scores like normal. “There are no negative credit events going on with this 0% student loan interest. It’s going to reflect in your credit score, carrying credit card debt,” Hornsby said.

If you have paid, you can get a refund

Anyone can get money back that was paid towards federal student loans right now, repayment plan or not. 

If you’ve paid your student loans but could use the money, you can get refunds if your loan qualifies. According to the Federal Student Aid website, “Any auto-debit payments processed between March 13, 2020, and Sept. 30, 2020, can be refunded to you.”

Getting a refund on your payment if you need it back should be as easy as picking up the phone and calling your loan servicer. “In most every situation I’m seeing, people are getting a refund processed within a two- to six-week time frame,” Hornsby wrote in his initial email. 

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