7 Ways to Make the Most of Your Money During the Student Loan Relief PeriodSeptember 29, 2021
Since March 13, 2020, federal student loan payments have been suspended and interest rates set at 0% due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
While it was initially designed to expire within a few months, it’s been extended multiple times. Now, the 35 million borrowers impacted by the CARES Act won’t have to worry about payments until after January 31, 2022 — giving you a few more months to use the student loan payment pause to improve your finances.
What to Do During the Student Loan Relief Period: 7 Smart Ideas
According to the Federal Reserve, the typical student loan payment is between $200 and $299 per month. But because of the CARES Act’s student loan payment hold, you don’t have to make payments right now. That means you may have hundreds of dollars each month to dedicate to other goals.
Not sure what to do during the student loan payment pause to get the best results? Consider these seven ideas:
1. Build Your Emergency Fund
If you’re like many Americans, you don’t have a lot of cash stashed in savings. A recent survey from the TIAA Institute found that 30% of adults couldn’t cover a $2,000 expense within a month’s time.
Not having a financial cushion puts you at risk. A single unexpected expense — a car repair, a vet bill, or a broken appliance — could deplete your savings and lead you into debt.
To protect yourself, use the next few months of the student loan payment pause to develop an emergency fund. If you tucked away your regular student loan payment in a savings account, you could build up your savings.
For example, let’s say your regular student loan payment is $290 per month. If you put that amount into savings every month from October through January, you’d save $1,160 — a solid start.
[Pro Tip: If you’ve continued making payments toward your student loans during the student loan payment pause, you can get the money you paid back if you’d rather use it for other goals. You can get a refund of all of the payments you’ve made since March 13, 2020, by contacting your loan servicer.]
2. Pay Off High-Interest Debt
If you have high-interest debt, such as credit card balances, you can use the next several months to make extra payments and reduce your balances. By using your student loan payments to pay off high-interest debt, you can lower interest charges, save money, and get out of debt faster.
3. Save for Retirement
As a young adult, you may be behind on your retirement savings. If that’s the case and you’re trying to figure out what to do during the student loan relief period, another option is to make contributions to your retirement fund.
By contributing money now toward your 401(k) or IRA, you can help your money grow. For example, let’s say you’re 25 and put $1,000 into a retirement plan and it had an annual average return of 8%. For the sake of an example, you never put another dime into the account. By the time you’re 65, your retirement fund would reach $24,273 — thanks to investing for the long-term, your $1,000 contribution would grow by over $23,000.
4. Reduce Your Student Loan Principal
During the CARES Act student loan payment hold, the government temporarily set interest rates on federal loans at 0%. If you’re in solid financial shape and have outstanding student loans, you can take advantage of this period and continue making student loan payments.
If you keep making your payments, the entire payment will be applied to the loan principal rather than accrued interest. Making payments now will help you chip away at the balance, reduce interest charges later on, and get out of debt faster.
5. Take Care of Yourself
Between work and family, there are a lot of demands on your time — and your money. Chances are, you haven’t taken the time to take care of yourself in a while.
If it’s been years since you visited a dentist, had bloodwork done, or had a checkup with a doctor, use some of the money that would have gone toward your student loans to take care of your health. You can use the money to cover copays and deductibles, and preventative healthcare and dental work can catch issues before they become more serious (and more expensive).
6. Complete Necessary Maintenance
Similarly, you may have put off routine maintenance on your car or home because of cost. If that’s the case, use your student loan payments for the next few months to get necessary maintenance done. Taking care of your car and home now can help prevent more costly issues later on.
If you’re not sure how to spend money during student loan deferment, consider the following ideas:
- Take your car to a repair shop: Regular auto maintenance, such as oil changes and tire rotations, keep your car working properly and maximize fuel efficiency. While your car is in the shop, the mechanic will also inspect it for any issues, potentially catching them before they become bigger problems.
- Have an expert service your HVAC system: HVAC systems should be serviced twice a year. Seasonal maintenance makes sure your system is working efficiently, can reduce energy bills, and ensures you meet the terms of your warranty.
7. Donate Money
If you’re financially healthy — meaning you have an emergency fund, are contributing to your retirement accounts, and have no high-interest debt — another option is to donate your student loan payments to help people struggling with money.
Organizations like Modest Needs and Feeding America provide essential services to low-income families, and your contributions can go a long way. In fact, if you had a monthly student loan payment of $290 and donated that amount just once, you’d help Feeding America provide 2,610 meals.
Taking Advantage of the Student Loan Payment Hold
The CARES Act’s student loan measures will continue through January 31, 2022. If you’re trying to decide what to do during the student loan relief period, taking steps to build an emergency fund, reduce debt, and plan for the future is a good idea.
Keep in mind that the U.S. Department of Education has said that the CARES Act won’t be extended again. You should expect to start making payments in February once the CARES Act expires. Take some time now to come up with a plan for managing your payments, such as enrolling in an income-driven repayment plan or refinancing your student loans, to avoid any surprises.