People with student debt have some relief until September 30
Since March, Americans carrying student loans received relief in the form of suspension of payments, collections, and interest on federal loans. Twice during 2020, that relief was extended through the end of January. One of the Biden administration’s first executive orders was to extend the suspensions through Sept. 30.
Black college graduates owe an average of $25,000 more in student loan debt than white college graduates, and 29% make monthly payments of at least $350, and in some cases much more. Regardless of whether student loan borrowers used the extra money to survive, save, or spend, these next eight months of further relief provide an opportunity to think strategically about how to handle debt and expenses.
According to CNN, the executive order covers about 85% of all federal student loans, including loans that parents have taken out on behalf of their children. It does exclude some loans that are guaranteed but not technically held by the government. “So you want to check with your service provider to make sure your loan is eligible for this relief,” said Melody Wright, Director of Financial Education at First Boulevard.
“The extended student loan suspension is a blessing for many facing financial hardships right now,” Wright said. “Not only does it offer relief, but it also gives people several options to use the money that would have been originally going toward student loan payments in other ways that can benefit their finances.”
The status of Black Americans and student debt
The massive gap in current wealth, the untold billions of dollars stolen from us through various means, and the income gap mean that student debt hits harder for Black Americans. We are more likely to need to borrow and five times as likely to default on loans. The massive wealth gap between Blacks and whites plays a huge role. Families with greater wealth are more likely to access capital, like securities or home equity, to pay for college.
Even the promise of advanced degrees to secure better paying jobs comes at a price: Black people are far more likely to take on loans for graduate school. Add to that the fact that we earn less at our first jobs out of college, and Black people face steeper challenges than anyone when it comes to attaining education, equal pay, and wealth.
Where do you want to be by September 30? Five things to consider
It’s important to have that extra money in your pocket, but it’s just as important, if not more so, to have a plan, Wright said. “Before making any decisions, be sure to weigh the pros and cons to decide which would be best for you,” she said.
Catch up on immediate needs: Your first and most immediate option would be to use the money that would have been going toward student loans to pay for groceries, utilities, rent, mortgage, or payments.
Pay off high-interest rate debt: With student loan interest now being set to zero, you can use the money that would have gone toward your student loans to pay off store cards and others that have interest rates of 20% and higher.
Make higher monthly payments: No high-interest debts? No problem. You can also use that money to pay off other debts that you have at a quicker pace. Remember, the more you put toward debt, the faster it will be paid off.
Save for an emergency or special event: You can add the money to an emergency fund or use this opportunity to create one. This will help you manage an unanticipated expense. If you need a break (who doesn’t?), you could even start a vacation fund.
Keep getting rid of student debt: Since you don’t have to worry about daily interest accrual, this is the perfect opportunity to pay down your student loan debt while all the money is going to the principal. By taking advantage of this suspension on interest, you could save yourself hundreds, if not thousands, of dollars over the life of the loan.
Digging yourself out of debt of all types is the first step in increasing your wealth potential. During a crisis like the global pandemic, take time to think about all of the moves you can make toward that goal.