• Matt Morizio

Your Federal Student Loans and the CARES Act

In my last blog, I explained all things deferring loan payments to help you make educated decisions with your money.

But I neglected one loan in particular - the federal student loan.

In the CARES Act, the US government elected to “press pause” on all federal student loan interest and principle payments through September 30, 2020, where:

  1. You will not make payments on the loan

  2. You will not be charged a penalty

  3. Interest will not continue to accrue

Which is a huge relief for some, but what if you are an essential employee, for example, and you are not financially impacted by the coronavirus?

First, I recommend you read this blog I wrote on debt, because it will help frame your decision making for the next 4+ months.

Next, you can look at any higher rate debt you have. Maybe you carry a balance on a credit card….at 23% interest per year. I’d redirect those student loan payments toward the credit card instead and eliminate that debt as fast as possible.

Last, check the interest rate on your federal student loan. If it’s 6 or 7%, you may want to continue making payments on your loan to really knock down your principle, because interest isn’t accruing all payments will go directly toward principle.

But what if it’s a low rate loan, say 3ish%?

You can still chip away at your loan principle. OR, you can take what would be your monthly loan payment and invest it. It’s likely you’ll see a much better return than 3% in the long run if that money is invested in the market.

Then in November you can go back to business as usual with your student loans knowing you used your money as a tool to your advantage!

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Investment advice offered through Beck Bode, LLC, a fee-only Registered Investment Advisor in the Greater Boston area.