Should You Make Student Loan Payments During Forbearance?

Updated 12/22/21

Great news for folks with federal student loans! The relief from loan payments due to the pandemic — also known as a forbearance — has been extended until May 1, 2022. This means that no payments will be due and no interest will accrue for federal loans during this time. For those who are unable to afford their payments, this is wonderful news. It’s also great news for anyone still able to make student loan payments.

Why Make Student Loan Payments if No Payments Are Due?

• To pay it off faster. Without interest accruing, 100% of your payment goes toward the principal loan balance, instead of part of it going toward interest.  If you want to pay down your loan even faster, consider making slightly higher payments right now.
• To bring your loans current. If your loans were past due before the forbearance period, they’re still reporting past due. Bringing your loans current will help you improve your credit score. If you’re unable to make ongoing payments, just paying the past due amount will help.
• To rehabilitate defaulted loans. If you’re in default, now is the perfect time to rehabilitate your loans. The payment and interest relief includes defaulted loans. This means you’ll get credit for payments, but you don’t have to pay until at least May 1, 2022. If you can make payments, as indicated above, 100% will go toward the principal balance. Contact your loan servicer to determine your options for getting out of default.

Who Might Not Benefit from Making Payments?

• Borrowers seeking loan forgiveness. During forbearance, you’re getting credit for payment. Making payments won’t help you meet the required number of payments faster. However, should something happen to make you not qualify for forgiveness in the future, you’re not reducing your loan balance without making payments. Be sure to consider the long-term effects if you decide not to make payments while seeking loan forgiveness.
• Borrowers with reduced income. If you have temporarily reduced income and cannot afford to make your student loan payment, focus on your priority expenses, such as food, housing, utilities, transportation and medical expenses. Reduce spending wherever possible. Also, if you’re having trouble keeping up on your housing payment, car payment, utilities, etc., contact the company/lender. Let them know about your income reduction, and see what options they give you. It is always better to keep them in the loop.
• Borrowers without an emergency fund. Consider building your savings first. Once you meet your savings goal, resume payments. For instance, if you have no money in savings and your student loan payment is $200/month, set aside that payment amount in savings while the loan is in forbearance. If you start in February, you’d have $1,600 in savings by the end of September!   
• Borrowers with other debts. If you have other debts with higher interest rates, large monthly payments, or one or two with small balances that are close to being paid off, consider paying extra toward one of those debts while your loans are in forbearance. Once you’ve paid off those other debts, add those payments to your student loans, helping you pay them off faster and save money in interest. If you need to get rid of a monthly payment, it’s best to start with the smallest debt. If you want to save more money in interest, then start with the debt that has the highest interest rate.

Need Assistance?

Even though your loans are in forbearance, it’s a good idea to come up with a plan now if you’re worried about future student loan payments, if you feel like it’s taking forever to pay them off, or if you’re in default or behind on payments.

If you have questions about your student loan payments, default/rehabilitation, credit cards or budgeting, LSS Financial Counseling can help. We have experienced, non-judgmental counselors who will work with you to bring your loans current, create a plan to pay off your debts, or just review your budget with you. Call 888.577.2227 to set up your free appointment, or get all your support online.

Author Nadine Gall is a Certified Financial Counselor with LSS Financial Counseling.